I am getting more concerned about the well-publicised
conviction that China is the answer to all the world's economic
woes. We are to believe that its industrialisation is poised to
drive the global economy out of its downturn and be the engine
for the future (not least, apparently, metal brokers).
I just wonder.
I can recall a generation ago that the same role was predicted
for Japan: economic leadership created by the strength of
Well, "Made in Japan" undoubtedly became the symbol of the
highest quality in manufacturing, particularly of high-tech
products, but ultimately the Japanese economy wallowed in a
more-than-decade-long slump of mediocrity.
Lots of professional economists, with more claim to academic
excellence than I, have attempted to explain what happened. But
frankly, to anyone who remembers the heady heights of the
period when, it was said, one block in Tokyo city centre was
worth more than the entire state of California, the reason is
not too hard to find.
The economy became a bubble, and that bubble eventually had to
burst. The fallout from that is what kept Japan flat-lining.
Is something similar awaiting China?
It's an interesting question. The policies pursued by the
rulers have kept incomes rising for many years, but the
position now seems to be that a growing part of the economy is
dependent on investment, and the creation of credit to finance
Perversely, although we are familiar with the concept of a
growing consumer market in China, recent statistics show a
falling consumption share of GDP (currently about 34%), versus
a 50% investment share (2011 figures).
My interpretation of that, together with anecdotal evidence of
increasing bad loans, is that a hard landing becomes more
likely. So, although the concept of the glitzy, high-rise
coastal strip spreading wealth westwards is attractive, it may
not be happening at the rate needed to keep the real economy
expanding fast enough.
If we follow that western drift, we come to Chongqing, and
recent political events there show potential signs of creating
political fault lines.
Although we often tend to pay compliments to the way the
leadership has opened up the society to allow a degree of free
enterprise, the fact remains that China is a one-party
totalitarian state. Historically, one-party totalitarian states
implode, either from internal or external pressures.
(As an aside, I also wonder to what degree the apparent slow
pace of the London Metal Exchange's plans to have warehouses in
China are related to concerns about the rule of law in a
country in which things are changing so rapidly.)
Anybody who has been paying attention to the travails of Bo
Xilai and his family, and acolytes who believe he is unique, is
Political dictators, when they are in power, always line their
The general estimates of Bo's personal wealth seem to be
settling on £150 million ($243 million), and strong
rumours suggest that those engaged in moving politicians'
stashes abroad have shifted about £800 million. I have no
way of knowing if those figures are correct, but they seem to
crop up remarkably frequently.
Economic progress across the country will also bring greater
education and a greater dissemination of information. Events in
certain Arab countries over the last 18 months have
demonstrated forcibly that people will ultimately not remain
China has a small - in relation to its population - cadre of
professional politicians, who hold the reins. The dilemma for
them is that economic growth, which is the good news story,
almost inevitably carries the seed of their own downfall. My
take on that is that it may slow economic growth.
So, the economy is perhaps not performing as well as some would
hope and potential political problems exist, with their
attendant influence on the economy. Anything else? Well, I'm
certainly not an expert in China's myriad ethnic minorities,
but I believe some of the problems out in the far west, where
ethnic and religious differences are pronounced, may become far
Has this got anything to do with metals?
Well, yes, I think it has.
Those who believe China is really the current engine for the
metals markets are deluded.
Right now, the QE-driven warehousing and finance trade is what
makes prices move. And if I'm right, and China's continued
uber-growth is not as much of a dead cert as it once seemed,
then we really do need genuine recovery in the USA and Europe.