More on China and Commodities


The inflation in commodity prices caused by China growth continues. Remember we in the OECD are also dependent on the terms of trade:

Xinhua state information agency reported that China has maintained a "basic balance" between supply and demand for major agricultural products since the late 1990s. Yet, national grain production is down for the fifth consecutive year, say experts. Inflation and decreasing grain reserves are worrisome.

The explosive demand for commodities in China has caused prices to rocket also at global level. Imports of grains and oil-seeds have doubled compared with last year. National grain production is down again for the fifth year consecutively. This year in particular, yields of all three major crops; wheat, rice and corn have dropped. Total national grain output is expected to fall below 450 million tons. If the trend does not change, it could result in a shortage by 2005, said the China daily on Thursday.

Inflationary trends have been recorded for grain, cooking oil, meat, eggs and fodder. The price hikes, which began in Beijing, Nanjing and Zhengzhou, quickly spread throughout the country. Purchase prices for wheat went up by 40 to 80 Yuan (US$ 4.80 - 9.70) per ton in major wheat production areas such as Henan Province. Prices for corn rose by 80 Yuan in northern China, while prices for rapeseed and rice increased by 20 and 10 per cent, respectively, in Anhui Province.

Farmers, who have been suffering sluggish income growth over the years, welcome higher prices. Still, that has its implications on the national agricultural market. The growing demand for grain stimulates imports from abroad that has other implications on the nation's trade balance.

Experts are expecting grain shortages. "China has been using its grain reserves to balance the market for the last four years," said Wan Baorui, vice-chairman of the Agriculture and Rural Affairs Committee of the National People's Congress. "The reserves can be used for, at most, another two years."

Since 2000, annual national grain demand has stood at 480-490 million tons, 25-35 million tons more than the annual output. Fundamental changes have caused that the national grain reserve have diminished. Not only natural disasters but also shrinking acreage slowed down the long years of oversupply. Moreover, rapid urbanization has been eating up grain fields.

In addition to the swift expansion of towns and cities, many regional governments have reserved large parcels of land for "economic development zones" meant to attract foreign investment, but many such zones simply lie empty due to a lack of infrastructure or adequate local investment, said the China Daily.

The low grain prices in the past have led to farmers' declining enthusiasm for planting it. Heavily burdened by various taxes and charges, most farmers would rather grow more profitable crops, such as peanuts and cotton, or migrate to the cities to look for better earnings. The latest government statistics indicate that 80.7 million rural labourers were working in cities at the end of September.

Professor Li noted that total global output of the three major crops this year would come to 2.03 billion tons, down 63.3 million tons from last year, marking the sixth consecutive year that the figure has dropped. The world grain market, meanwhile, experienced its biggest price fluctuations in seven years, said the China Daily.

Due to population growth, increasing consumerism and economic growth the grain demand is rising. Although, China must make every effort to guarantee that at least 90 per cent of demand is met by domestic supply, as grain is a product involving national security, that target is not reached so far.

To realize this target, Han Jun, an agriculture researcher with the State Council Development and Research Centre said, national grain acreage must be kept stable, at around 1.07 billion hectares. Han also suggested the central government abolish agricultural taxes in five years while taking strict measures to curb the occupation of farmland for industrial development and other purposes.
Source: China Biz
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The Quality of Soya is not Strained

Back to the fascinating story of Brazil's soyabeans for China. Today there is an interesting follow up: the Chinese are worried about quality:

Brazil's agriculture minister Roberto Rodrigues will meet his Chinese counterpart in Beijing later today to resolve quality problems that have slowed Brazil's soybean exports to China, the world's biggest buyer of the oilseed. Brazil, the world's second-largest soybean producer, plans to send inspectors to its main ports to ensure shipments of soybeans to China are free from fungal contamination and don't contain grass or other waste matter, Rodrigues said in an interview at the World Economic Forum's 22nd annual China Summit in Beijing. "Starting now we are sending inspectors to our main ports,'' Rodrigues said. ``Some exporters have wanted to make big profits in one shipment by mixing good quality soybeans with bad quality. We are doing our homework now to resolve the problem.''

In August, China's quality inspection bureau banned new orders for soybean shipments handled by Cargill Ltd., Louis Dreyfus & Cie., Bunge Ltd. and other international traders, citing concerns that shipments contained too much grass or fungus. The ban was the latest in a series of disruptions that started when China introduced regulations on genetically-modified crops last year. Rodrigues will meet Qi Jingfa, China's vice agriculture minister, and Li Changjiang, head of China's quality inspection bureau, later today. China has said it found fungus and other contaminants in shipments of soybeans from Brazil. The discovery has prompted a slowdown in issuance of soybean import permits for shipments from the South American country. Brazil will pledge at the meeting to identify shipments that contain genetically-modified soybeans, Rodrigues said. Of Brazil's total soybean harvest of 51 million tons this year about 7 million tons are gene-modified. That figure will rise to 10 million tons next year, he said. Brazil's soybean harvest may rise to as much as 58 million tons in 2004.
Source: Bloomberg
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China's Far West

As part of the 'fair and balanced' policy, after an article singing the praises of China's potential, here's a fascinating one one the downside problems. China's ethnic diversity. I have only produced a trucated excerpt here, the whole peice is well worth reading. And if I say that the US is demographically 'condemned to grow' just imagine China's problems, and the potential consequences fro the rest of us.

This is Beijing's nightmare: a people within China's border who speak their own language, keep their own time, and face Mecca when they pray. The Uighurs of Xinjiang province embody Mao's "super-chaos" - and Beijing doesn't like it. Roving Eye Pepe Escobar reports on the start of a trip along the ancient Silk Road.

KASHGAR and URUMQI, Xinjiang - At the Mother of All Bazaars, the atmosphere still evokes Marco Polo's Travels. A monumental traffic jam of donkey carts coils around the muddy borders of the Tuman River - trespassed by horses, Bactrian camels, acres of melancholic sheep and elders brandishing sickles and testing horseshoes, saddles and whips. Sandy alleys bear the conspicuous accumulation of carpets from Hotan, mountains of spices, laminated dowry boxes, bits and pieces of dead animals, very much alive chickens and ducks, the famous Yengisar knives, hats in all shapes and colors, pots and pans, fruits, vegetables, riding boots, prehistoric transistor radios, Pakistani silk stockings, any imaginable agricultural tool hand-made from wood or steel, and the usual paraphernalia of items available in any self-respecting Oriental souk. The food is delicious - from bread sprinkled with poppy or sesame seeds to lahgman - noodles topped with mutton and vegetables; from jiger (liver) kebab to girde nan - Uighur bagels.

One hundred thousand nomads and villagers converge every week on this anthropological delirium, the Kashgar Sunday market. Solemn barbers with long sharp knives perform in the street. Multitudes gather in front of karaoke-TVs. The cast of characters - with their long, pointed beards, decorated hats, dark cloaks and black boots - are all Uighurs: an ethnic subdivision of the Turks who dominated Mongolia in the 8th and 9th centuries. The language, of course, is Uighur. The music, still on audio cassettes, is gecekondu arabesk, Turkish pop. Most women wear multicolored scarves, but quite a few wear a chador or a thick brown cloth thrown over their heads.

Spiritually, the area points to Mecca. We are more than 4,000 kilometers from Beijing, and two hours behind Beijing time which is supposed to apply to the whole of China. But here, everybody is guided by Xinjiang local time. There's not a single Han Chinese face in this bazaar.................

To top it all, Beijing has radically cut off aid to the so-called "ethnic minorities": there are 12 in Xinjiang alone, and apart from Uighurs (42 percent of the population) they include Hui (Chinese Muslims), Manchu, Mongolian, Kazakh, Kyrgyz, Tajik, Uzbek and Tatar. Only Han Chinese could come up with a concept like "minority food street". Beijing is only interested in promoting "mysterious" Xinjiang for tourism purposes: but it has to be a Xinjiang reduced to theme-park status. If you are a Uighur and you happen, by a miracle, to work for a Chinese company, you cannot go to the mosque. Signs on many mosques, in Arabic, say they are forbidden to teenagers - which is a frankly absurd ruling that has nothing to do with Islamic law. All public demonstrations by Uighurs are forbidden. And if you are an Uighur in Urumqi and you talk about independence, you are arrested on the spot, assures a trader in Yengisar knives. In March 2000 Beijing formally adopted an ambitious plan for "the large-scale development of the West". The key point of this massive "Go West" campaign is to resettle millions more Han Chinese in Xinjiang. Beijing would not be too displeased if in the long run this official policy exports many of the 7.5 million Uighur and 1.3 million Kazakh "minorities" toward the more unstable pastures of the former Soviet Central Asian republics.

Mao Zedong used to talk about the possibility of a "super-chaos" in China. Arguably the mindset remains the same in Beijing, as the Politburo knows very well that Uighurs and other "ethnic minorities" are less than 6 percent of the total population of 1.3 billion, but they occupy more than half of Chinese territory. Xinjiang is almost as big as Western Europe. Beijing's greatest fear is the - at least for the moment - remote possibility of new alliances between regional chiefs and business elites capable of redrawing China's map, as happened many times in the past. Since the implosion of the Soviet Union and the birth of the new Central Asian republics, Xinjiang has had a constant influx of people from Kazakhstan, Uzbekistan and Kyrgyzstan: both parts of Turkestan started in a way to unify. That's exactly what Beijing does not want. Beijing wants very well defined - and patrolled - borders (more in Part 2 of this series).

But the fact is that here, amid mighty Central Asian mountain ranges, it's impossible to talk about defined borders. Xinjiang anyway remains the laboratory of the future of this China riding a tiger at full speed and at the same time trying to control all the "super-chaos" it is capable of creating. With more than 25 percent of the world's population and the most coercive of birth-control policies, China still has not managed to contain its population explosion. Ten percent of Chinese territory, inhabited by two-thirds of the overall population, and producing 70 percent of the national wealth, is prone to inundation by major rivers. China's economy needs to grow at least 10 percent every year just to absorb new contingents of job seekers.

According to Minister of Labor and Social Security Zheng Silin, in his latest report to the National People's Congress, a staggering 150 million Chinese rural workers are unemployed of a total of 485 million; and of 94 million farmers who have recently migrated to big cities, the majority are still unemployed.

Growth at a median 8 percent annually - something the West can only dream about - is still not good enough for China. While some sectors of "market socialism" have degenerated into gangsterism, and human rights, from Beijing's point of view, means only economic development, hundreds of millions of people are involved in the largest internal mass migration movement in history. Dozens of millions of unemployed threaten social cohesion. In the event the Dragon starts to disintegrate, the implosion will begin on the periphery, at the last frontier, in the wilderness that shot from the 14th century straight into the 21st: Xinjiang.
Source: Asia Times
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And It's Off to China We Go: PartXII


Today it's the French TV platform Thompson who have taken the plunge into China. (No plug intended but they made the set that's sitting in my living room). There is nothing very surprising or unexpected in this. OECD manufacturing will increasingly head for China. It is though important to note that the Chinese 'big thing' is being driven on two motors: FDI stimulated export growth raising little-by-little internal living standards, which then produces an internal market of awesome dimensions.

Thomson SA, the biggest supplier of televisions in the U.S., will merge its TV business with China's TCL International Holdings Ltd., creating the world's largest manufacturer by sales volume. Thomson, the Paris-based maker of RCA brand televisions, and Huizhou, China-based TCL will combine their television an DVD- player operations into a venture with $3.5 billion in sales, the companies said in separate statements. TCL, which leads China's TV market, will own 67 percent of TCL-Thomson Electronics, and Thomson the remaining 33 percent. Thomson Chief Executive Charles Dehelly has already announced 1,200 job cuts in the U.S. and shifted production to China, whose two dozen TV producers are increasing their share of the North American market because of lower costs. TCL's parent is planning to sell shares in China to help fund overseas expansion after profit from its mobile-phone business slumped. "The deal will help TCL's overseas expansion,'' said Lily Jap, an analyst at Nomura International (H.K.) Ltd.. "There are still many unknowns financially as Thomson's television business isn't making money. Who is going to bear Thomson's restructuring costs as they put the assets together?'' TCL's stock, which surged 29 percent last week to HK$2.925, was halted in Hong Kong. The stock has gained 23 percent this year. Thomson's shares rose 14 percent last week, closing at 18.12 euros in Paris on Friday.


China is the world's largest TV market and manufacturer, with 20 million units sold locally and 11.4 million exported in the first seven months of this year, according to the Ministry of Information Industry. TCL sold 3.7 million televisions in China during the period, compared with 3.6 million for No. 2 maker Sichuan Changhong Electric Co. Including exports, Sichuan Changhong was the bigger producer. TCL posted sales of HK$3.1 billion ($399 million) from televisions in the third quarter. About a fifth of Thomson's 10.2 billion euros revenue last year came from televisions and other video products. TCL-Thomson will have combined assets of 450 million euros and will sell as many as 18 million televisions a year, TCL said. "This strategic alliance fulfills our objective of being one of the top five players in multimedia electronics devices in the global marketplace,'' TCL Chairman Tomson Li said in a statement.


The Chinese company has been expanding in Europe. Last year, it bought assets from insolvent German TV maker Schneider Technologies AG. TCL also makes televisions for Royal Philips Electronics NV, which owns 4 percent of TCL Corp. Under the agreement, Thomson will contribute to the venture all its television factories in Mexico, Poland and Thailand; its DVD-player business; research centers; and 9,000 workers. TCL will contribute factories in China, Vietnam and Germany, as well as its sales outlets. The venture will focus on selling TCL brand televisions in Asia, Thomson brand in Europe and RCA brand in North America, TCL said. Thomson will also have the right to swap its one-third stake in TCL-Thomson for an unspecified number of TCL shares within 18 months after the venture is formed, TCL said. Thomson acquired the RCA brand when it bought Radio Corp. of America from General Electric Co. in the late 1980s. RCA, formed in 1919, introduced its first TVs in 1939 and invented the standard for color television adopted by the U.S. in 1953. "It's a trend that more TV makers will combine to form bigger groups,'' said Liu Haizhong, a spokesman for Sichuan Changhong Electric Co., a TCL rival. ``There is a huge market for televisions in China and in the world. The merger won't kill other rivals.''
Source: Bloomberg
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Truckloads of Soybeans


I've been down for the morning with one of those pesky server outages. Meanwhile stephen has been back to me with some more info on the soya bean situation in Brazil:

Just a quick comment to say, "nice find" about the soybeans piece in Brazil. The reality on the ground is truly spectacular. When I lived in Curitiba, we were about 100 km from the port of Paranagu??, mentioned in the article. The truckloads of soybeans would be queued up for more than that distance (110-130km) waiting to get onto the scales and unload. When you drive past km after km of trucks full of soybeans every day for several weeks, you can start to imagine how big the Brazilian crop is. It was little wonder, given the prices received and the exchange rate at planting, that there was a powerful move to get the crop to market, and also little wonder this brought the R$ back up from nearly R$4 to below R$3 to the dollar.

Where I was working, people said that the R$ was undervalued and that it would recover. The sceptic in me said, "no way, this never happens!", and then it did. Lately it seems that the R$ has decoupled just a bit more from the $, such that the weak dollar globally has meant a stronger R$. This past week has seen us below R$2.90 consistently, which is back around the rate I received when I first came to Brazil in July of 2002.

China: Raw Material Impacts I


OK I've got the 'China Impact' safely up on the radar. Anyone with anything interesting to contribute, please forward. Today it's the mining group BHP Billiton:

BHP Billiton, the world's biggest diversified mining group, gave a relatively upbeat outlook for its main commodity markets and said strong demand from China was underpinning volume growth in a number of areas. In its first-quarter results announcement on Wednesday morning, the Melbourne-based group said sales to China's booming economy had grown at an annualised rate of about 50 per cent in the three months to September after rising 126 per cent last year. Chris Lynch, chief financial officer, said Chinese growth was contributing to "very strong demand" for iron ore and coal - a commodity that China recently began importing in large volumes - and to "strong demand" for aluminium and alumina. He said China had also been a factor in the group's decision to bring back its Escondida copper mine in Chile to full production from January, a move that would increase output by 200,000 tonnes a year. The Anglo-Australian group reduced output by as much as 10 per cent over the past two years in a bid to help stem the fall in copper prices.
Source: Financial Times
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