05/17/11 Paris, France – Last night…
We’re racing to the airport at Pudong. We don’t know why we are racing; there is plenty of time. But the driver seems to want to set a new land speed record for a taxicab.
He’s rocketing along at 100 mph. The cab weaves flawlessly through the traffic.
But what’s this? The cab driver has taken both hands off the wheel. He is putting in a CD. Moments later…what da…?
Country road, take me home, to the place, I belong…
West Virginia, mountain mamma, take me home…
This is no country road. It is about the most modern highway we have ever been on. Flyways…flyovers…bridges…elevated highways…we have just gone over the river on a bridge that looks like it was built yesterday. Now, we are cruising along through the smog in 8 lanes of traffic.
Over on the left, a ghost city is barely visible through the gray haze. It must have dozens…no hundreds…of office and apartment towers. There is a huge parking lot on the left…and then, in the distance…another city. We see only the shapes. But it is a city as big as Bethesda…no, as big as Baltimore….
We continue our Taxicab 500…passing cars on the left…then on the right…and then, right through the middle… slipping through a narrow space with cars and trucks on both sides.
Again on the left is another of these spectral cities… Is it Cleveland? Is it San Diego? In size, it could be either. We left downtown Shanghai a half an hour ago. But we are still passing through towns…industrial parks…and building projects. There must be a dozen cities the size of Baltimore between the center of Shanghai and the airport.
The airport, of course, is new…like everything else…and colossal. It is Dulles in style. But bigger, many times bigger.
Can there be any doubt that China is destined to become the world’s economic superpower? It has the size…the energy…the know-how. And it has the money.
One of our Dear Readers in Shanghai enlightened us:
“I came here 20 years ago. Then, we foreigners had so much more power and money…and technology. We could call the shots.
“Our company still does about half its manufacturing in the US. The local companies here in China can beat us on price every time. And the contracts are huge, so we can make a lot of money here…even with low-cost, relatively low-margin products. But the top quality stuff still comes from the US. The Chinese have not quite caught up – partly because the market here doesn’t want too much quality.
“There’s such a fast turnover. People don’t want to pay for products that will last too long. Things are changing too fast.
“So for now, the quality here on many items still isn’t up to US standards. It’s just a matter of time, though. I’m going to retire in 5 years. I figure that’s about as long as we’re going to be able to do these deals. After that, it’s all over. They won’t need us. They have the money. They have the skills and technology. We won’t have anything to offer.”
Generally, the more you do something the better you get at it. The Chinese are making more cars…more highways…more trains…more office buildings and more of everything than anyone else. It is no wonder that they are doing these things well – maybe better than anyone else too.
A new train service between Shanghai and Beijing begins next month. Trains will travel between the two cities at up to 300 kilometers per hour. Already, a high-speed maglev train takes you from the airport to the city so fast that you arrive before you find a seat.
But so what? You’re probably wondering. So are we. So what if the Chinese take the lead in wealth and innovation?
You remember those 5 big trends we mentioned in yesterday’s “The Land of Rising Prices and Stagnant Incomes”? You don’t? Well, we’ll repeat them:
1) The Great Correction – in many of the advanced economies, but centered in America…
2) The continued rise of the developing economies…not just in Asia, but in Latin America and Africa, too.
3) The increasing scarcity of cheap energy, land, water and raw materials.
4) The decline (suicide might better describe it) of the American Empire.
5) The approaching end of the dollar-based world financial system.
The interesting, and frustrating, thing about these trends is that they all intersect in various ways at various times…setting up collisions that are as unpredictable as they are hazardous.
You’ll notice, too, that the China story runs right through the middle of them, like a tanker truck through a pizza parlor. It is the central story to the rise of Asia and the developing economies. It is a large part of the reason low-priced commodities and natural resources are disappearing. The Chinese currency is almost sure to rise as the dollar-based world financial system comes apart. And China is also the likely successor to the US Empire.
We have neglected this theme for years – ever since we published (with Addison Wiggin) our opus on the subject, Empire of Debt. But the killing of Osama bin Laden reawakened our interest.
One of the few things we don’t wonder about is why the feds killed Mr. bin Laden. It would have been far too messy and uncomfortable for them to put him on trial. After all, before he was America’s greatest enemy, he was one of her greatest friends.
Yes, dear reader. Mr. bin Laden rendered much service to the US Empire, specifically to the US defense establishment. First, he set up Al Qaeda, with CIA help, to harass the flank of America’s most powerful enemy – the Soviet Union. Then, when the Soviet Union fell, the defense industry was despondent. There was no longer any need to invest such a huge part of America’s treasure on ‘defense’ when there was nothing to defend against.
With no plausible threat, the defense budget would have been easy prey for the budget hawks. But then, in their hour of need, like the Argentine generals coming to the aid of Maggie Thatcher’s approval ratings, Osama bin Laden came to the rescue. At least, so it appears. We would have been very curious to find out more about his role in the 9/11 attack; unfortunately, the trial of Osama bin Laden was cut short by two bullets fired at close range.
Not that we’re criticizing. If we were in a position of power, we probably would have wanted him to disappear too. The last thing anyone in the CIA would want to see would be Osama shooting his mouth off in front of the whole world.
According to The Atlantic magazine, bin Laden triggered $3 trillion of spending by the US. How much of that ended up in the pockets of defense contractors? One percent? Five percent? We have no idea, but even 1% would be a $30 billion windfall, probably about equal to the annual profits of all the world’s automobile companies combined.
But now what? Osama is in Davy Jones’ locker. And the US is headed to bankruptcy. Will the Pentagon and its suppliers go gently into that good night – of budget cuts and shrinking profits? Or will they rage…and find a replacement for Mr. bin Laden? China, perhaps?
Stay tuned.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Well if the US launched 10 nuclear missiles into each of the 100 largest Chinese cities, it would still have 1000+ nuclear warheads ready for deployment. Militarily America is more of a threat to itself than China could ever be. War with China wouldn`t be as restrained as recent mid east operations since it holds no oil unlike our arab frenemies.
Yep,,, China’s the best. Thats pretty much been beat into us…
“They have the money. They have the skills and technology.”
what they don’t have is a market. they don’t pay their own people enough to buy their stuff, and soon americans won’t have enough money or credit to buy that stuff either. what will the chinese do then?
“They have the money. They have the skills and technology.”
so where will they get a market? they don’t pay their own people enough to buy their own stuff, and the american market is evaporating. who will they sell to?
They will sell to Latin America, Russia, Africa, etc. And they can always provide their citizens with credit, raise their salaries, and start fostering an internal market.
“They will sell to Latin America, Russia, Africa, etc.”
won’t happen. all those places combined do not have the resources to purchase enough chinese goods to support china, and anyone with any money has it because they are exporters to and in direct competition with china for any import market they can find.
“And they can always provide their citizens with credit, raise their salaries, and start fostering an internal market.”
also won’t happen. the chinese do not provide credit to peasants, they are not about to raise salaries and thus lose their primary competitive advantage, and there is precious little internal market to foster – the chinese economy is 2/3 export-driven and the chinese people save 2/3 of what little income they get. united states consumer demand alone is twice the size of the entire chinese economy, there is no way chinese consumer demand can replace that market.
this talk of the chinese economy becoming the largest in the world, the yen replacing the dollar as the reserve currency, of china ruling the future – it’s all hype.
“They will sell to Latin America, Russia, Africa, etc.”
won’t happen. all those places combined do not have the resources to purchase enough chinese goods to support china, and anyone with any money has it because they are exporters to and in direct competition with china for any import market they can find.
“And they can always provide their citizens with credit, raise their salaries, and start fostering an internal market.”
also won’t happen. the chinese do not provide credit to peasants, they are not about to raise salaries and thus lose their primary competitive advantage, and there is precious little internal market to foster – the chinese economy is 2/3 export-driven and the chinese people save 2/3 of what little income they get. united states consumer demand alone is twice the size of the entire chinese economy, there is no way chinese consumer demand can replace that market.
this talk of the chinese economy becoming the largest in the world, the yen replacing the dollar as the reserve currency, of china ruling the future – it’s all hype.
if the chinese can drive 100 mph on 16 lanes…
…well, how could it get any better than it already is?
it’s toad! of toad hall! i’d recognize him anywhere! it takes a lot of fuel to make all that smog, too!
Guy down the road from me has a McMansion with a Caddy in the drive. Think he’s rich? After the housing bubble, you should know better. He just has more debt.
China has ghost cities, and quite a few of the world’s tallest buildings. Think they’re rich?
China has us beat on wages. But look at manufacturing outside China–it’s robots for everything.
Quality may be all the US has left, but it’s not nothing.
The last thing China needs is a consumer paying in a soon to be worthless fiat currency. They now have capacity to produce all the worlds good and/or the capacity to arm the worlds largest army. Nuke em, I don’t think so. Beat them, not with our current rules, regulations and unions. US becoming a third world with nukes and dollar rich Wall Streeters……….looks that way.
Merchantile prowess does not equal militairy prowess. Any nation foolish enough to think so might consult with the Dutch to learn that key historical lesson. The Chinese are not fools. They’re handling thus far of their finances proves that beyond any doubt. So I don’t think we can expect any provocation on their part. I suspect a far more likely scenario would be domestic unrest on such a collosal scale, that militairy adventurism won’t be an option to any of the fragmented centers of power in the aftermath of a dollar failure.
If I was president the only thing we would send to China would be Missiles!
Distressing theme of “us or them” running through these comments. Biggest economy doesn’t mean biggest threat to America. China’s not building military bases on foreign soil. We should be selling to these people. gman, I suggest you take a look at the latest 5 year plan. The paradigm is shifting. And no one country will rule the future – multinational corporations already do, and will.
“gman, I suggest you take a look at the latest 5 year plan. The paradigm is shifting.”
I’m sure it’s a great plan on paper, but with a declining customer base it’s just a hopeful piece of paper. you’re right, the paradigm is shifting – the chinese communist party is about to dismount the tiger and lose the mandate of heaven.
There is a simple way the chinese government can make almost every chinese family rich enough to buy all the goods the US is currently consuming.
And every chinese family has gold and silver passed down from many generations. The chinese population is now buying 40-50% of the world supply. I would not be surprised if 90% of chinese families have 10 or more oz of gold just from family inheritance.
If the US economy takes a big dump all the chinese government need to do is say we will back the yuan by exchanging 1 oz of gold for 50,000 yuan. By that time the yuan may be worth 3:1 to US$. Then overnight you have each chinese household net worth jump to 500K yuan or $160KUS.
Now how can the government pull off above without creating excessive demand and inflation I don’t know – but since you guys are implying there will be excess capacity due to US meltdown then the governement can try to find the optimal gold to yuan exchange that will create the perfect balance of supply and demand so it controls inflation.
“The more you do something, the better you get at it”. Except that you find that you don’t need the better stuff anymore, like when the Egyptians became so good at building pyramids, and cost of granite shot through the roof, pyramids became passe.
The pyramids are made of limestone.
I just got back from China, too, but what I got out of the trip was quite a bit different. It struck me that all the construction, all the “money”, it was all unsustainable.
A cab running 100 mph outside of Shanghai? I call BS, because the traffic is so bad in all the populated parts of China that nothing moves anywhere very fast. The Chinese are adding something like 18,000 cars per day to their already congested roads. In about a week, traffic all over China is going to grind to a complete halt.
Cities and construction, everywhere. Real cities, ghost cities, boom towns, giant hotels springing up in the middle of wheat fields, for no discernible purpose, other than for some already wealthy people to make money on the giant Ponzi scheme that Chinese city building is right now. Huge high rises are standing mostly empty, full of apartments owned by speculators. Housing prices in the big cities are in the same price range as similar American cities, yet the Chinese make maybe 1/5th what their American counterparts make. Who is going to buy all that property?
I would also disagree with the idea that China is leapfrogging the rest of the developed world in technology and innovation. China is getting ahead, but it’s on the back of a surplus of cheap labor. Look inside the factories, and you don’t see a lot of innovation, just a lot of people who are willing to work very hard for very little money. You also currently see a lot of inflation in the Chinese economy. Prices are going up, and it’s already getting harder for factory owners to find all the cheap labor they need to feed the beast.
All in all, what I saw was a huge, unsustainable bubble. It will all last until the business leaders in the developed countries find another country where there’s a cheaper ready labor force. Then it will start over somewhere else.