That little bit of Mafia wisdom did not come from the Mafia. It predates Machiovelli. The Roman Empire knew it well, though it likely predates them, as well.
It seems then, that an ancient culture such as the Chinese would be so remiss as to not think things through.
I am speaking of the nonsense being paraded around the news wires and proferred by our talking head sages that Treasury Secretary Hank Paulson's trip to China yielded the great favor of the the Chinese Government to decrease subsidies for Oil, Natural Gas, Coal & Electricity, hence raising the price for the Chinese consumer and slowing demand growth.
I am going to go out on a limb here... and ASSUME that the Chinese actually know their chess and think several steps ahead. You can be sure that the folks at the NSA, DOD and the CIA do, despite the belief by the jerks on the extremes of American politics that EVERYBODY in Government is an idiot (I reserve that designation for our elected officials/lawyers who only think about how to survive the next election - maybe they are not so much dumb as self-interested. Wait - didn't we elect them to serve OUR interests? Oh, never mind...). The Chinese were in the position of strength and surely knew that Paulson would come, hat in hand, for help. As for the Chinese, you can be sure that they did NOTHING that was not in their best interests (0r their opinion thereof), and would certainly make use of said interest in diplomatic endeavors as well as China's internal affairs.
All importers must, at some point, end their subsidies on imported fuel oil. That it has gone on as long as it has in China and India is somewhat of a surprise, but the real meassure in this instance is "price" not "time", perhpas I should say "as far" instead. How does it benefit China to continue to import Oil at $140, or "what if" $200, per barrel? Why would they prefer to subsidize their citizens rather than take their US$ reserves and buy "barrels in the ground" (reserves)? NAFC.
This bears watching. If the Chinese government wanted to destroy demand unilaterally, they could do it in (in my opinion). If it is their intention to reign in demand growth, they could do that, too. The effects on world oil prices between these 2 positions is BIG. HUGE. LAAARRGGE!
This is a very important development and deserves serious consideration. "Hoping" and/or "wishing" will not help. Deep thought and correct action is everything when trading. Feel free to email me your thoughts on this... idea flow is going to be very important on this one.
Good Luck!
Mentatt (at) yahoo (dot) com
Subscribe to:
Post Comments (Atom)
11 comments:
I've been thinking about this thru lunch, and I can't see why the Chinese would do this. They already have a 7-8% inflation rate, they know how the people get really mad when prices for the poor (the majority) go up (Tiananmens happen), almost every other government around the world subsidizes energy. They want to slow down their growth? The Chinese??? I can't see the logic in this move.
I think the Chinese may have raised their gas prices to get their tea-pot refineries back running in order to allieviate their imports of refined products.
Perhaps it is forced by necessity after all - preventing their own refiners & oil production (while China's a net importer it does pump a lot of its own oil) from going broke?
Its very hard to say, as I guess none of us have contents in the Chinese politburo. I can see them wanting to slow demand, and they wouldn't care less about the plight of their citizens provided they can avert any actual uprisings. The trouble with China is that its so inscrutable!
What effect this may have on world demand for oil - that's the real question. Will China now be buying less of the stuff? I'll believe that when I see it, as they're still constructing stuff like there's no tomorrow.
*by "contents" I do, of course, mean "contacts".
There is a possibility that instead of dampening demand for oil it could actually exacerbate it in China. It all depends on whether the Chinese people and industry can afford unsubsidized prices. If they can they will continue to buy gasoline even though they will no doubt grumble and protest. However, from the point of view of Sinopec and other Chinese refiners and importers, price rise means that they can now make money from selling gasoline in China while before they could not. Their demand for oil may increase substantially to fill up the pipeline. So in the short run we are looking at a negligible reduction in demand at best and perhaps even an increase in demand. This may seem bizarre but if you were a petroleum distributor, what was your motivation to expand supply availability at a controlled price? Not much. That is why the country suffered such debilitating shortages of fuel for several months now. Perhaps the Chinese govt finally figured out that the shortages were causing more disruptions then the high price would.
What happens in China may do nothing to help US with its supply problems because Mexico and Venezuela are reducing their exports so rapidly. So there is a potential for a US supply crunch this Summer, no matter what happens.
Chuck H.
Excellent points...
I will be posting more on this shortly. If any of you have anything to share please email
On a per capita basis, the USA uses 6 times the energy of China. And a lot of that Chinese energy use is to make useless shit to sell to the USA.
Guess the Chinese government has decided to stop subsidizing cheap exports to the US.
I bet they will still subsidize further down the energy pipeline so food and shelter inflation doesn't get too out of control for the homeboys.
Cars are just a status luxury there...everyone uses their excellent public transportation
or electric motorcycles in their very densely packed, newly built energy efficient cities.
Increase in energy costs will have an effect, but not the same as it will have here.
They have a government that has formulated a real national energy policy unlike the USA that is letting corrupt cronies make the plan.
I don't know - from what I've read China's manufactured goods and produce are all transported by truck, as they don't have rail infrastructure in place.
That exposes their whole economy to movements in the oil price. I think Chuck was pretty close to the mark when he said that shortages were doing more damage than higher prices would. Its hard to move goods if your trucks can't fill up ;)
China plays the long game, and I don't mean the 5 years between elections (which of course they don't have), I mean the 20 and 50 year long game. Our western minds can't easily take that on board.
I'd guess the Chinese government have recognised that the terms of trade with the west have swung so far in their favour that they can afford to reduce their oil subsidy without risking their trade. It is better to invest their money on infrastructure than spend it on subsidy. They're taking the Long View.
However it may also be that the Olympics and earthquake have upset their budget, and they need to keep spending in control.
Either way, I don't think they're too concerned about what their population thinks about it.
Donal! Excellent point! Thanks for that, it filled in a big blank for me. Back to you soon.
This is off target but for some reason I am thinking of the mult-millions in foreign aid we hand out. This money does not just go to starving nations. The U.S. is at a point where we have to make some very tough decisions, and this should be one of them. We cannot give away the farm any longer.
Post a Comment