Monday, January 28, 2008

China Frostbitten

China's stocks fell recently after a sudden snow storm left hundreds of thousands stranded at transit stations around the nation. In preparation for the Chinese new year, many families (about 199 million Chinese) are expected to be traveling both by train and plane in the weeks just before and after the Lunar New Year. The government has encouraged provinces to "share" coal and electricity during what will undoubtedly become a very strained period of energy consumption.

Two things come to mind: what an awesome experiment and how will this affect the U.S!? The first of these thoughts is perhaps a bit brutal, but seriously, how often does the world get to see the energy supply in a nation like China stretched to the limit? Of course, a similar experiment occurred to the U.S. following Hurricane Katrina; the outcomes there were often dire and still has the American energy market reeling. Will China be any better suited to deal with such situations? We will have to wait and see.

Furthermore, if China's stocks fall, the question becomes: is that a good thing for the U.S.? I am willing to wage an answer of both yes and no. Our economies are becoming incomprehensibly intertwined. If they do poorly, Americans will definitely feel the effects. China owns in excess of one trillion USD's, and more and more, they are pouring their currency into our economy. Even so, China relies on its ability to supply consumer nations. If that ability to produce becomes hampered, we might gain more independence from their markets, which would definitely be a good thing. As well, if the dragon stumbles, it too may find itself dependent on other nations to supply medical and emergency aid. These are all pluses for the U.S., especially since the ensuing world-wide recession has affected Chinese markets the least until now.

All in all, Americans should sit up and take note. China may soon find itself on the downhill and in need. I say strike while the iron is hot!

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