Monthly Archives: December 2010
AFP has published a story quoting the US Census Bureau, who predicted that India’s population will overtake China by 2025.
According to the Census Bureau, Indian women are producing 2.7 children on average, while China’s females are well behind, with only 1.5 children per woman.
China of course has its One Child Policy, which has been in place almost 30 years, and is now entering its second generation. Although it has been tweaked from time to time, the policy is still largely the same as it has been since the 1980’s. But it must surely come to an end soon.
This is because there will come a time when it will start delivering seriously negative outcomes. Simple mathematics and a knowledge of how Chinese culture works, will explain.
China is a society in which family hierarchy is very important. Unlike in the West, where we tend to put our unwanted forebears into old-age homes, Chinese families are expected to care for parents and grandparents. The task often falls on the oldest son.
But if the oldest is also your only child, then it is up to him/her to take care of both parents. When that child marries (another single child), then those two have up to 4 parents to look after. As the quality of life improves, as well as the quality of health services, those elderly folk will be living with their children for many more years than for previous generations.
The problem multiplies if it extends to the next generation. The two people who have been caring for four parents, can have only one child. Once that child marries, and his/her parents retire, then there could be as many as 12 parents and grandparents all looking for support from the next generation.
It’s actually less of a problem just now, since many of today’s retirees aren’t alive, thanks to the millions of people who died in the great famine and the cultural revolution a couple of generations ago. But it is a problem that is due to arrive as the policy remains in place.
Meantime, the proportion of active workers compared to retired workers starts shifting in the wrong direction. Less people entering the work force, despite a growing economy, will cause wages to rise, and could cause economic growth to falter.
The problem for the government, or more precisely the planners and strategists inside the Communist Party, is how to ease the policy in meaningful ways, without removing it entirely. A complete dissolution of the policy could lead to a relatively quick increase in demand for food and water, and then for schools, hospitals, and finally for jobs. While the majority of Chinese still live in rural rather than urban environments, the ability for the government to deliver social infrastructure is restricted, and jobs are already scarce in those areas.
Trouble is, a part easing is probably no easing at all, since it is hard to see how to only partially lift it. A two-child policy perhaps?
And even if the authorities were to lift the ban on extra kids today, India is still likely to eventually overtake China as the world’s most populous nation.
Here at AZ China, today is a normal working day. In China, and around Beijing, we have a sprinkling of Christmas decorations, a few shops playing Christmas music, and even a Santa-con (Don’t know what a Santa-con is? Click here.) But that’s about it. Christmas is nothing special. Heck, we even have one of our staff members on a business trip Saturday and Sunday.
But since I am the boss, and a Westerner, we are about to take the staff to lunch. I will be taking the afternoon off to do a spot of Secret Santa shopping for tomorrow.
Those of us who have not fled to warmer climates or back to loved ones (I miss you all), will be getting together at Capital M, the famous Australian-owned restaurant in Tianenmen Square for brunch. We went last year as well. “Brunch” finished at 3am the next morning!
So that just leaves me enough time to wish you all a very merry Christmas, and a fantastic New Year. And may the Aussies win the next test at the MCG against the Poms, starting Sunday.
For those of you who live in Beijing, the phrase in the title must seem like an oxymoron. There is plenty of traffic, but no control.
In the month of November alone, more than 80,000 cars came onto Beijing’s roads. Anyone who tries to go near Gongti Beilu any evening during peak hour would tell you that there must be 80,000 cars on that street alone. And it’s the same all over Beijing.
But yesterday, the local authorities announced that they would introduce a licence plate system similar to the one in Shanghai. In that city, the number of cars coming onto the roads for the first time is controlled by an allocation system. The number has probably changed in recent years, but it used to be that only 20,000 number plates were available each calendar month.
That created a market for the auctioning of number plates, which nicely offset the revenue loss for the local government, but it also helped control the congestion on Shanghai’s roads. It gave the civil teams time to build the extra highways, tunnels and connecting roads needed.
Now, it is an unusual sight to see a Beijinger acknowledge that Shanghai got anything right. The two cities have a friendly rivalry that goes all the way to the top of the political system. (Hu Jintao’s predecessor and enemy Jiang Zemin has his power base in Shanghai, which has led to President Hu making Shanghai one of his least visited cities.) But in this case, Shanghai has indeed got it right, and it is a good thing for Beijing that someone finally gets control of the vehicle population here.
Previous efforts by the authorities turned out to be useless, though a boon for car sales. During the 2008 Olympics, the authorities introduced a rotation system for using your car - cars with number plates ending in 1 or 6 could not be driven on Mondays, 2 or 7 on Tuesdays etc. In the two and a bit years since then, that system has been in place, more or less. But that simply led people to the car salesman. Buy a second car, make sure it has a different number plate ending, and you have solved the problem. The number of cars on Beijing’s roads has grown continuously.
A restriction on licence plates will probably flow upstream to a reduction in car sales, but unless every other city in China embraces the same policy, it is unlikely to have a big impact on automobile production numbers. With 21 million people, Beijing is too small to have a nation-wide effect.
There are reports today that the Henan provincial government has had to reduce power supplies to aluminium and lead smelters in the province. No indication as to the extent of the reductions as yet.
The reduction in supply is because the central government has capped the price of coal, leading coal producers to lose interest in supplying at a loss (or at least at a loss of potential margin). Producers and power companies have failed to cut deals on supply.
This problem is not isolated to Henan, as the coal price is fixed for all of China, but Henan is the province with one of the tightest and highest supply-demand ratios, making them the first to the pinch.
I for one hope that the issue is sorted soon, and especially for the power stations that feed Beijing with their electricity. As I write this post, it is currently -8C, and the forecast for Christmas Day is for -1 down to -11. But no snow, so no white Christmas.
Aluminium Company of China, better known as Chalco, held a summit of all its major suppliers this week, in the beautiful city of Zhu Hai. I wasn’t invited, but the feedback from those who were was quite interesting.
It seems that the message from the meeting was that things would be much cooler next year. A Government spokesman (I wasn’t given a name or the department he hails from) got up and told the audience that coal prices would fall next year. He told them that production would increase dramatically, as productivity measures kick in, and as logistics improve.
But, he said, demand would not grow anywhere near as fast as this year. Why? Because the government intended to introduce measures to control the rate of growth of the economy, and to improve controls over the environment.
No specifics were given, apparently. But the people I spoke to came away believing the message.
I am not sure that I do. While it would be great to think that the government will protect and improve the environment, for as long as money (measured as M2 money supply in economic terms) keeps pouring into the economy, it will continue to seek a home. And for as long as the government seeks to provide better housing, schools, hospitals and jobs for the millions (make that tens of millions) who currently don’t have these basic items, then secondary industry will continue to flourish. Somebody has to make the steel, glass, cement and aluminium for all those buildings. That’s not to say that it will continue to grow at the pre-GFC rates, but any actions by the authorities on the environmental part of the economy are bound to take second place to actions for urbanisation.
For too long, Beijing has been a hollow voice, or no voice in the provinces where the real issues lie. This past 6 months has been the first time we have seen economic policy brakes actually work, when Beijing ordered provinces to reduce energy intensity. That was the major surprise of the whole process of the energy restrictions - that the provinces actually took notice of what Beijing decreed. If there is one note of caution, then it is that perhaps Beijing will not be so quick to lose that power they gained.
Having said that, we are also entering the final year or so of the rule by the Hu/Wen team. One wonders whether the desire to enter the history books as a benign leader who presided over a growing China, might colour their resolve in tackling the growing problems of inflation, money supply, corruption and environment. Perhaps it is easier to leave those problems one more year, for the next generation of leaders to fix. After all, China is the country where the term “Not on my watch” is paramount among public servants.
As always, the future is uncertain, but I tend to think that the predictions put up on the chalkboard at the Chalco meeting may be quietly erased in the coming months. After all, Chalco was talking to its suppliers - what better message to give suppliers than “prices to go down next year.”
Reports are circulating that a South Korean company is investigating the feasibility of building an aluminium smelter in Vietnam.
Dongyang Gangchui, an extrusion company in South Korea has said it is working with Vietnams’s VINACOMIN, the national coal and minerals conglomerate, in the project. Vinacomin is the company in charge of the alumina project in Vietnam, which is scheduled to start producing in 2011.
The proposed smelter would be 300,000t in capacity, and would eventually sell its metal into the South Korean Market. A classic case of upward vertical integration.
One curious thing about the announcement is that they expect to spend $350 million to build a smelter of 300,000t. That’s around $1167 per tonne. Not even the Chinese can get their costs that low. A smelter of that size will cost at least 50% more than that. And that’s without considering any additional spend to ramp up power generation for the smelter, or port facilities, or additional environmental requirements.
Nevertheless, it would not surprise me if the South Koreans gets some calls from certain aluminium giants, asking about joining in the project. For one thing, if you are going to do it, why stop at 300,000t? The South Korean market alone is around 2.5m tonnes, while there is that other neighbour immediately to the north of Vietnam that uses a few tonnes as well.
Following on the heels of the diesel fuel shortage and the increased crude processing to fix it, comes news that China’s crude oil consumption has already exceeded last year.
China’s crude oil demand hit 393 million tons to the end of November, 10.7% higher than this time last year. November itself came in at 13% above November 2009, with 38.1m tons.
Not surprisingly, China’s imports of diesel fuel increased by 50% y-o-y, as both major state-owned companies sought to relieve the domestic shortage.
Reports are circulating this week that the Government has decided to lift the import tariff on calcined needle coke to 3%, from its current 1%.
Pitch coke tariffs will also rise to 3%, according to the reports.
The tariff on other categories of calcined coke, as well as for petcoke, will remain at 3%.
The changes are set to commence January 1st. The tariffs had been set to 1% to encourage imports.
Some recent news from around the world’s aluminium smelters…
* Mostar smelter in Bosnia is facing imminent closure, because of a strike by railway engineers. Mostar’s raw materials, including coke, come by rail from the nearby port, but the rail strike, over reduced manning, means that they could run out of supplies as early as this weekend, according to reports. Mostar Management has issued an urgent call for the government to bring an end to the strike, saying that a closure of the plant would be permanent, and would cost 900 jobs.
* Rio Tinto’s smelter at Tiwai Point in New Zealand has been hit by a big jump in electricity prices. According to the local media, the wholesale price of electricity has jumped from NZ$0.04 per kilowatt hour to NZ$0.23. (NZ$1 = US$0.74) Tiwai Point has apparently cut production by 5% in response, equivalent to about 1,500 tonnes per month.
* Nalco is powering ahead with its plans for a smelter in Indonesia. The government owned company has selected a JV partner for the project, and expects to start construction in June 2011. The plan is for 500,000t of smelting capacity, and a power station.
* Meanwhile, PT Antam has announced they will build a 300,000t alumina refinery in West Kalimantan, with production commencing in 2014. (Thanks to PD for spotting that East Kalimantan was wrong.)
We have previously discussed the problem of unreported primary aluminium production - see here. Now we have had it confirmed.
One very large smelter told us that they had been ordered by Beijing to reduce output by at least 25%. But when they went to their local provincial government, and explained that the reduction would cause loss of jobs, the provincial government told them to “do what you can, just don’t tell Beijing.”
How do they avoid telling Beijing that they are continuing to run at full pelt? They withhold their production records, and add the accumulated production into their January output figures. Our source tells us this is a common practice among smelters, although he conceded that probably those that are owned by State Owned Enterprises will be reluctant to countermand Beijing.
So, how to find out what they really make, as opposed to what they report? Our source told us that the best source is via company tax statements. From his comments, it seems the tax man is the one they really fear. They don’t dare misrepresent their situation to the tax authorities. Our problem is, those tax returns are not available for public scrutiny.
He also told us that his estimate of the true production figure for China for 2010 will come in at as much as 17.5 million tonnes.
We are now going to watch the January and February production numbers for a backlog bubble.
Editor’s note: we went back and looked at December 2009 data compared to January 2010. According to the CNIA figures, January production jumped by 20% over December. A little suspicious, methinks.
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