the case for china

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    THE CASE FOR CHINA

    By Marc Faber

    The rise of China as Asia's dominant economic and
    political power raises a number of issues. It is obvious
    that with a population of 1.2 billion, China will be the
    largest consumer in the world for most goods and services.
    Already today, China has more refrigerators, mobile
    phones, TVs, and motorcycles than the United States, and
    it is only a matter of time before it will have huge
    markets for just about any product. As a result, its
    resource requirements will rise very substantially, and
    Chinese purchases of oil, coffee, copper, grains, and so
    on will move commodity prices dramatically.

    Just consider the following. Asia, with a population of
    approximately 3 billion people, consumes 19 million
    barrels of oil daily. By comparison, the United States,
    with a population of 285 million, consumes about 22
    million barrels of oil - that is a per-capita consumption
    more than 10 times that in Asia. However, consumption in
    Asia is now rising rapidly. China's oil demand has doubled
    over the last seven years to around 4.5 million barrels a
    day.

    But it is not only in the oil market that Chinese economic
    growth will be felt. Take, for instance, the per-capita
    consumption of food in China - which I won't compare to
    food consumption in some Western countries where a large
    percentage of the population suffers from obesity. If we
    look at consumption of meat, milk, fish, fruits, and
    poultry in China, Taiwan, and Hong Kong, it becomes
    obvious that the rising standard of living in China will
    lead to very meaningful increases in its purchases of
    agricultural products in the years to come; sometime in
    the future, it will have a similar per-capita consumption
    pattern to those in Hong Kong and Taiwan.

    What I wish to emphasize here is that if standards of
    living continue to rise in China, the country will have a
    huge impact on the world's commodity markets and is likely
    to push up commodity prices very considerably. In fact, I
    regard the purchase of a basket of commodities as the
    safest way to play the emergence of China as the world's
    dominant economic power.

    Thus, when we compare the U.S. economy in the second half
    of the 19th century to China at present, we should not
    overlook the fact that, in 1850, the U.S. economy was well
    behind the United Kingdom and the Continent in terms of
    industrialization. Therefore, a catching-up effect came
    into play.

    The point is simply this: if the United States could
    become the world's dominant economic power by the end of
    the 19th century from extremely humble beginnings, I think
    that, with the acceleration of the pace of change that
    allows regions that open up to industrialize in no time,
    it is quite probable that within just 10 to 20 years China
    will be by far the world's most important economy - no
    matter how many crises it will have to deal with in the
    interim.

    Regards,

    Marc Faber,
    for the Daily Reckoning

    P.S. One problem I can foresee, however, is that, because
    of its size and increasing economic and military
    importance, China will grow out of proportion for
    harmonious balance of power in Asia. When, in the future,
    China has become Asia's largest trading partner, with
    respect to both its exports and imports, it will not only
    be an economic hegemon, but will also replace the United
    States as Asia's most influential political power. That
    such a transition will at some point lead to serious
    tensions between the United States and Japan on one side
    and China on the other is obvious, but the trend towards
    China's dominance in Asia is well established and, in my
    opinion, unstoppable.
 
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