Chinese Economics Thread

I wonder

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Registered Member
China can build an Aluminium plant for a 1/3rd of the cost of competitors in the west.
Bad call on China aluminium industry hits Western
Western firms, Rio Tinto in particular, have been damaged by underestimating the cost and technological advantages of China’s aluminium industry, according to new research published today by a leading expert on Chinese resources.

Rio partially justified its purchase of Canadian giant Alcan in 2007 on the expectation, says Australian Michael Komesaroff, that China would soon cease producing aluminium and would instead start importing, resulting in a higher price.

However, says the former executive of Rio Tinto and of a major Chinese resources corporation, in new research for Beijing and Hong Kong-based Gavekal Dragonomics, “rather than shut capacity China continued to expand, and today its aluminium production is twice the size it was in 2007”.

This continued expansion, he says, has kept aluminium prices depressed and has forced Rio to write down two-thirds of its $US38 billion Alcan investment.

Chinese smelters have boosted their comparative efficiency to a degree that has surprised competitors — despite Chinese aluminium giant Chalco being Rio’s largest single shareholder.

And, says Mr Komesaroff, Western industry players, also including US giant Alcoa, who “have long believed that China’s enormous expansion of aluminium capacity defies economic logic … misunderstand how industrial policy drives China’s decision-making”.

He says aluminium is the single exception to the big picture of the commodity super-cycle being finished — because its price never rose strongly during the heights of the boom.

Demand did grow during the super-cycle, up an average annual 7.2 per cent over the past five years. But China met most of that demand itself, through massive investment in smelters.

“China’s local government-driven investments set new standards for excess,” says Mr Komesaroff.

Thus 90 per cent of the growth in production worldwide has happened in China in the past decade — so that the country now produces half the total global supply.

The extent of this boosted capacity will, he anticipates, “put pressure on the rest of the global aluminium industry to restructure and consolidate to survive”.

But Paul Adkins, managing director of Beijing-based aluminium-focused consultancy AZ China, points out that an increasing amount of smelting capacity is shifting far inland, especially to Xinjiang and Inner Mongolia regions in the northwest, “some 2000km from the nearest major port.”

And the industry’s focus is on meeting domestic demand.

Falling coal costs and increasing subsidies by local governments are lowering electricity costs, Mr Adkins says.

And “capital is not a problem in China”, he says, suggesting that with Chinese rolling mills at only 50 per cent utilisation, “there’s no time like the present to start gearing up to penetrate the US auto market”.

Analysts have long argued, says Mr Komesaroff, that since energy accounts for about 40 per cent of the production cost of aluminium, it makes no commercial sense for China, with relatively high-cost electricity, to produce so much — encouraging global producers like Alcoa and Rio to expand.

However, he says that Chinese engineers can now, with their considerable experience building smelters over two decades, construct a new plant for only a third of the standard international cost.

Such plants are also among the largest, averaging 400,000 tonnes per year — 45 per cent above the average elsewhere in the world, allowing the Chinese smelters to spread their fixed costs over greater output, lowering average production costs.

Yet Chalco has made losses for two of the past three years, which threatens to continue.

So failing a shake-out of excess Chinese capacity, it has formed a coalition with 11 other smelting firms in China, aiming to support prices by selling directly to customers rather than to the Shanghai Futures Exchange.
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Equation

Lieutenant General
- China is in talks with the International Monetary Fund to include the yuan in the institution’s basket of reserve currencies, according to a central bank official.

“We are evaluating this and are actively in talks with the fund,” People’s Bank of China Deputy Governor Yi Gang said at a press conference in Beijing Thursday. “We hope it can fully consider the progress of yuan internationalization, allowing the yuan to be part of the SDR basket in the foreseeable future.”

China is promoting the global usage of its currency as it seeks to liberalize domestic interest rates and open up capital markets. The yuan overtook Canada’s dollar to rank fifth for use in international payments in December, after passing the euro as the second-most used in trade finance in 2013.


The Washington-based IMF will later this year conduct a twice-a-decade review of the currencies in its Special Drawing Rights that members can count toward official reserves. The basket now comprises of the dollar, euro, yen and British pound.

The yuan “has no issues” in meeting the criteria in terms of global usage for the IMF review, Yi said, adding that it is heading “for the direction to be freely usable.” Awarding the yuan reserve-currency status will facilitate China’s financial reforms, he said.

There isn’t a need to adjust Hong Kong’s dollar peg as it has been “working well,” Yi said when asked if the city’s currency will be marginalized as the yuan becomes more popular in global trade.

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AssassinsMace

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In the US spending from disposable income is used as a gauge on the economy. A lot of disposable income is being spent in China yet not a gauge on the economy. Just shows you how much confidence plays a role on an economy. You have to make people feel the economy is doing well in order to get them to spend money. Then on the flip side it can be used against an economy hence all the negative spin on China's economy.
 

AssassinsMace

Lieutenant General
I'm watching Morgan Spurlock's show on CNN on honeybee colony collapse. Because of honeybee colony collapse in the US, the US has imported more honey from other countries. China is the largest foreign honeybee exporter so because of it there's a tariff of 200% on Chinese honey because it apparently has illegal harmful pesticides in it. In order to skirt the tariff China was accused of "honey laundering" shipping honey via other countries. There's a way to check where the honey originated from by the pollen found in it. Companies can skirt around this by filtering out the pollen. Tests showed that the majority of honey found on US store shelves have no pollen in it therefore is suspect. If certain illegal pesticides are being used, shouldn't they check the honey for pesticides instead of just looking for pollen? They're not. They're only concern is where it came from so that means the tariff is not about pesticides or dangerous other things they claim. Here's the kicker. The episode was about honeybee colony collapse. So what's the leading theory that has been tested on why there's colony collapse happening in Western countries? It's the pesticide that Western countries use that was deemed safe. China has a robust honeybee industry not suffering from colony collapse despite charges of dangerous and harmful pesticides used. Europe has stopped using the pesticide in question and their bee colonies have shown improvement as a result. Since the tests used the approved pesticide at even a lower amount allowed by government limits and only a few number of colonies survived, the question comes up if the pesticide is harmful to humans if ingested through honey or even fruits and vegetables harvested from farms for consumers to buy at the supermarket. BTW the show itself didn't see the glaring ironies throughout. It went along with the narrative about dangerous Chinese honey as it were fact.
 

broadsword

Brigadier
Why did the Chinese bee industry not collapse? Did the farmers use less pesticides than their Western counterparts? I remember reading a Hong Kong Consumer Council report that found that adulteration of honey is actually low in concentration. As for the vaunted Manuka honey, it is not as pure as they claimed because farmers have to feed the bees glucose to tide them over the winter months. And the honey itself has adverse health effects due to its unique properties.
 

AssassinsMace

Lieutenant General
The show didn't mention that China was or was not suffering any sort of colony collapse. It mentioned because it was happening in the US, other countries where honey was production wasn't suffering were exporting it to the US. So it's either the pesticide the US and Europe used was a worse poison or China wasn't doing what was accused.

I forgot to mention that the pesticide in question can be sprayed the traditional ways but also it can be introduced into the seed before planting so that the pesticide is actually a part of the plant. That means you can't wash it away.
 
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dingyibvs

Junior Member
Australia is rethinking their previous stance on the AIIB, was UK only the first of three dominoes (UK, Australia, SK)?

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Treasurer Joe Hockey told reporters in Sydney on Friday the government is reconsidering its position in the light of UK and NZ support.

"Quite obviously China has improved the governance structure it is proposing for the Asian Infrastructure Investment Bank," Mr Hockey said.

"So much so that New Zealand has now signed the MOU (memorandum of understanding), as has the UK.

"This is something that will obviously be taken into account by the government over the next few weeks as we continue our dialogue with those people behind the bank."
 

dingyibvs

Junior Member
SK is joining the chorus...could they make the jump as well?

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However, the government is on the verge of becoming an AIIB founding member, reported local media outlets, Wednesday.

"The government has persuaded the U.S. to understand Korea's need to join the AIIB and it has made progress," a government official was quoted as saying by the Seoul Economic Daily.
 

AssassinsMace

Lieutenant General
Not surprising it just takes one for the dominos to start falling. I'm sure Beijing now sports the same grin as the US when they managed to steer every economy of note away from the AIIB. The media likes to over analyze what something means in a negative way when something goes against China. Fill in the blanks at what this means.
 
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