Seven Reasons Why We Should Not Depend on Imported Goods from China

It seems to me that the situation in China is far different from what most people think it is. Even if we would like to depend on China, we really cannot.

Reason 1. When we depend on goods from China, an amazingly large share of the world’s industrial activity gets concentrated in China.

The five largest users of energy in the world are China, the United States, India, Russia, and Japan. The International Energy Agency shows total energy consumption as follows for the year 2016:

Figure 1. IEA’s estimate of energy consumption (total fuel consumed, or TFC) by sector in 2016 for the top five energy consuming nations. Mtoe is million tons oil equivalent. Source: IEA. Non-energy use is the use of fossil fuels as a material to create end products that are not burned. Examples include medicines, plastics, fertilizers, asphalt, and fabrics.

When these countries are compared, restricting our analysis to the portion of energy used by industry, we find the rather disconcerting result shown in Figure 2:

Figure 2. Chart by the International Energy Agency showing total fuel consumed (TFC) by industry, for the top five fuel consuming nations of the world.

China consumes more fuel for industrial production than the next four countries listed (United States, India, Russia, and Japan) combined. Of course, we don’t know exactly the corresponding amounts for other countries of the world, but we can observe that if a country is concerned about its CO2 emissions, the easiest way to reduce these emissions is to send heavy industry elsewhere, such as to China or India. There are likely many countries that are primarily service economies, thanks to the option of outsourcing most industry to other countries.

Much of the discussion I have read regarding sending industry elsewhere has been in the direction of, “As advanced as our economy is, we don’t need heavy industry; service jobs will substitute. Industry can be developed at lower cost elsewhere. Everyone will be better off with this arrangement. The invisible hand will provide jobs and goods and services for everyone.” In addition, corporations saw the possibility of adding customers from around the world. Not too many thought about the real-world problems that might result.

Clearly there is a problem with the jobs being lost to China and other Emerging Markets. When new service jobs are added, they often do not pay as well the industrial jobs they replaced. In fact, there might not be enough jobs in total, if automation plays an important role as well.

Another issue is that the level of industrial concentration can be a problem. We are now depending on China and perhaps a few other countries to provide for a large share of the “stuff” we use. Even if China is not the only provider, it is often an important part of the supply chain. If something should go wrong (for example, widespread riots in China), we don’t have a Plan B.

Reason 2. China needs energy products to make the goods it uses for itself and for the goods it exports. China’s own energy supply is faltering. Because of China’s huge size, it is becoming increasingly difficult to keep China’s energy consumption rising sufficiently rapidly using imported energy.

China’s own energy production is shown in Figure 3. (Note: Hot off the press! New BP report released this week.)

Figure 3. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

It is easy to see that China’s coal production hit its highest point in 2013 and has stayed at a lower level since that date. Also, China’s highest oil production occurred in 2015, with lower production since that date. China’s total energy production has been rising recently, but only with great effort. Total energy production is only 8.9% higher in 2018 than it was in 2012, implying an increase of less than 1.5% per year, relative to 2012 amounts.

A standard workaround for inadequate energy production growth is imported energy products. Even with these imports, it has been impossible to keep total energy consumption rising as rapidly as it rose in the 2002 to 2007 period. The cost with imports is greater, also.

Figure 4. China energy production by fuel, plus line showing its total energy consumption (including imports), based on BP 2019 Statistical Review of World Energy data.

In 2018, China imported 71% of its petroleum (either as crude or as products), and 43% of its natural gas. It was the largest importer in the world with respect to both of these fuels.

In 2018, China’s coal imports shrank as its own coal production surged. This was almost certainly a change planned by China. China would much prefer producing its own coal (and keeping the jobs within the country) to importing coal from elsewhere. China imported 4% of its coal from elsewhere in 2018.

Reason 3. The commodity demand from China is so huge that, to a significant extent, it determines world commodity price levels. Where regional energy prices exist, China’s choice regarding whether or not to import from a country can influence local price levels.

Chile is the largest copper producer in the world. A recent article regarding problems associated with lower copper prices notes that the demand for Chilean copper has been driven “almost entirely by the expanding Chinese economy over the last three decades.” For many commodities, China consumes over half of the world’s commodity supply. If China’s industrial demand is growing, prices will tend to rise, allowing more of the mineral to be extracted. Higher commodity prices tend to be needed over time because the ores of highest concentration (and otherwise easiest to extract ores) tend to be extracted first. Ores extracted later tend to be more expensive to extract, so higher prices are required for extraction to be profitable.

This situation of China playing an extremely large role in commodity prices holds for a very large number of commodities. If China is building widgets or any other product, using a particular commodity, China’s need to buy this commodity in the world market will tend to hold up world prices for the commodity. This situation holds even for fossil fuel prices.

Reason 4. Over the next few years, China’s coal supply is likely to fall significantly because of depletion. This lower fuel supply is likely to lead to a shrinkage of China’s industrial capability, and, indirectly, falling world commodity prices of all kinds.

The problem that China is encountering in Figure 3 is “peak coal.” This is a similar problem to that encountered by the United Kingdom immediately before World War I, and to that Germany encountered just before World War II.

Figure 5. The timing of the peaks is peculiar, relative to wars.

Coal tends to be the industrial fuel of choice because it is cheap. Goods made with coal tend to be inexpensive, especially if wages paid to workers are low and if the company making the goods does not spend much money on pollution prevention. Hydroelectric can be an adequate substitute for coal, if the water flow can be depended upon. Wind and solar are too intermittent and not sufficiently inexpensive to be adequate substitutes for coal. Wind and solar (included in “Other Ren” on Figure 3) are also far smaller in quantity than coal.

Outsourcing a large share of the world’s manufacturing to China seemed like a great idea back when it was started, often in the early 2000s. If, at some point, China cannot really handle the responsibility it has taken on, outsourcing gets to be a huge problem.

The reason why coal prices cannot rise very high is because if they do, the prices of finished goods will need to rise as well. Wages of workers around the world will not rise at the same time because the higher cost of production takes place due to something that is equivalent to “growing inefficiency.” The coal mined is of lower quality, or in thinner seams, or needs to be transported further. This means that more workers and more fuel is needed for each ton of coal extracted. This leaves fewer workers and less fuel for other industrial tasks, so that, in total, the economy can manufacture fewer goods and services. Because of these issues, countries experiencing peak coal are pushed toward contraction of their economies.

Unfortunately, rather than leading to high prices (to compensate for the higher extraction costs), running short of inexpensive-to-extract fuel tends to lead to war, or to tariff fights. Countries whose coal is depleting will try to maintain their own supply as long as possible. They will invent excuses to stop importing coal. Back in September 2018, the Financial Review reported, “China has introduced unofficial restrictions on coal imports in a bid to prop up domestic prices by slowing down customs approvals at key ports.” China needed higher internal prices to make it profitable to extract coal from its depleting coal mines.

Figure 6. Chart showing prices of Brent Oil, China Qinhuangdao Spot Coal price, and Asian Marker Coal, all in US$ of the day. Amounts from BP 2019 Statistical Review of World Energy. Note also that the units of coal (ton) are much larger than the units of oil (barrel) used on this chart. Thus, the same number of dollars of buys a much larger quantity of coal than of oil; coal is cheaper.

If higher coal prices really were possible over the long term, it would make it possible to open new mines in more distant locations. The location of coal mines is important because transport costs by rail or truck tend to be high. China built the large ghost city of Ordos, Inner Mongolia, on the expectation that coal prices would rise, making development of coal in the area profitable. Unfortunately, coal prices fell, making the project not economic. I visited the area in 2015, after teaching a short course on Energy Economics in Beijing. There was a large almost empty airport, and few vehicles were using nearby multi-lane roads.

Reason 5. All of the concern about future tariffs artificially raised China’s 2018 industrial production and commodity prices. Because production was brought forward into 2018, China’s production and world commodity prices can be expected to be lower in 2019 and in future years.

Manufacturers wanted to front-run tariffs, so they tended to ramp up production in advance of the tariff implementation date. This higher production in turn tended to raise commodity production and prices around the world. Note on Figure 6, above, that coal and oil prices are both higher in 2018 than in 2017. Prices in 2019, not shown, are tending to trend downward again.

China badly needed higher coal prices in order to help its coal extraction. Thus, part of the reason that China was able to continue to function as well as it did in 2018 was because of all of the discussion about future tariffs. If this discussion had not taken place, employment in China would likely have been lower. With this lower employment, sales of automobiles and smartphones would have been lower as well.

Note, too, that even with the demand brought forward into 2018, China’s economy was not functioning very well in 2018. Private passenger automobile sales for the year fell by 4%. Smartphone sales fell by a worrisome 15.5%. Clearly, workers were having difficulty buying the kinds of goods a person would expect a growing economy to be selling. I would attribute these problems to the peak coal problem mentioned earlier, making it increasingly difficult to increase the amount of industrial operations provided by China’s economy.

Reason 6. The Chinese economy has been gradually changing and adapting to hide its energy problems. Even more changes will be needed in the future, potentially affecting the world economy, with or without tariffs.

The Chinese economy reports carefully massaged GDP numbers, which many analysts consider to be inflated in recent years. Its debt level keeps rising to try to keep all of its operations going.

We know that China discontinued one major industry at the beginning of 2018: recycling plastic and other types of low-valued recycling. With low oil and natural gas prices, this type of recycling cannot be profitable. Of course, discontinuing a major industry can be expected to lead to a loss of jobs within China. But, on the positive side, it frees up coal and other energy resources in China for other industries that can (perhaps) make more profitable use of them.

On a world basis, the loss of the plastic recycling industry becomes a problem. If rich countries are willing to subsidize the cost of sending plastic recycling to China, this subsidy allows containers that bring goods to rich countries to be sent back to China with a paid load inside. Thus, operating the plastic recycling industry helps keep the cost of shipment of goods from China to the US or Europe down because the shipping costs only need to cover the one-way cost of transit, rather than also covering the cost of shipping the empty container back. Without the subsidy to pay the freight of the plastic recycling, costs for the shipping industry rise, making international trade more expensive. Eliminating the subsidy that rich countries are paying to ship otherwise-empty containers back full of mixed trash is part of what pushes the world economy to contraction.

Other countries are not taking over very much of China’s role in recycling plastic, either. The net effect is that the loss of recycling is one of the things pushing the world toward contraction.

China has no doubt been cutting back in other ways as well. It is likely that it is not building as many uninhabited cities and roads that are really not needed. Ugo Bardi recently posted this chart showing global cement production.

Figure 7. World Cement Production by Ugo Bardi from a blog post on January 19, 2019.

China produces over half of the world’s cement; part of the reduction we are seeing relates to China’s falling use of concrete in new buildings and roads.

In some cases, China is moving in the direction of being a service economy. A recent video states that of the $237.45 cost of producing an iPhone in China, Chinese workers only provide assembly services, worth $8.46. The US contributes $68.69 of the cost, mostly in the design and distribution phases. The parts are generally outsourced from other parts of the world.

One way of looking at what is happening in China’s economy is to analyze the country’s oil consumption in terms of the relative amounts of diesel (used primarily by industry) and gasoline (often used by private passenger vehicles).

Figure 8. Gasoline and diesel consumption for China, based on data from 2019 BP Statistical Review of World Energy.

Based on Figure 8, it appears that China’s industrial growth suddenly leveled off about 2012. This, not by coincidence, is about the time that China’s coal problems were becoming apparent in China. China’s gasoline consumption has continued to rise, however. It appears that once it became apparent that its coal supplies were starting to seriously deplete, China began to “grow” China’s economy more as a service economy. After 2012, most growth seems to have come in the non-industrial sectors of China.

Reason 7. A major concern should be a financial collapse, far worse than 2008, both in China and for the world as a whole.

The world needs growing energy supply to support the world economy. China is increasingly having difficulty with its energy supply. When China has trouble with its energy supplies, the world as a whole has a problem with its growth in energy supplies.

A few months ago, I showed the role China has played in the world economy is this chart:

Figure 9. Ten year growth in world energy consumption, divided between the blue portion associated with rising population, and the red portion associated with higher energy consumption per capita, which I have called “Living Std.”, meaning “Higher Living Standards.”

China added a little bump in GDP growth at the end of the nearly 200-year time period shown, after it joined the World Trade Association in December 2001. The energy added by China (mostly in the form of coal) allowed the world economy to continue to grow, when it otherwise would have been up against limits.

Now we are reaching a situation where China’s energy production is likely to flatten or fall because of the depleted state of its coal mines, and the fact that coal prices can’t rise high enough, for long enough, to open new mines. The world economy, over the period shown, has always had rising energy consumption. In most cases, energy consumption rose faster than population growth, allowing some growth in the standard of living over time.

Changing to a situation of shrinking energy consumption per capita would likely be extraordinarily traumatic. Population would likely fall. Commodity prices would drop to low levels. Debt would tend to default; prices of shares of stock would fall. Many governments would fail. If shrinking energy consumption per capita starts in one country (whether China or elsewhere), it could easily spread to other countries around the world.

We don’t know what is ahead, but we know that the low points on Figure 9 were very bad times, even though energy consumption in total was not contracting. The decade of 1860 to 1870 was the decade of the US Civil War. The decade of the 1930s was the decade of the Great Depression. The decade of the 1990s was the decade of the collapse of the central government of the Soviet Union.

We also know that world energy consumption and GDP growth tend to be highly correlated.

Figure 10. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

This is as we would expect, because energy consumption is required for the many aspects of GDP growth. Transportation, heating and/or cooling, and electricity all require energy consumption, for example.

The recent divergence between GDP and energy consumption on Figure 10 may be the result of overstated GDP amounts by China, India, and other countries. If a country wants to appear inviting for new investment, there is a temptation to overstate GDP since other countries seem to be doing so, without penalty.

Back during the Great Recession of 2008-2009, our problem was with homeowners who took out loans that were far higher than they could really afford. Today, we have whole economies taking on more debt than properly stated GDP reports would suggest they are able to handle. We go from one version of optimism regarding debt levels to another.

Conclusion. If a person doesn’t understand how badly the energy situation is working out for China, or how important energy consumption is, it is easy to think that the problems China is facing are primarily tariff-related. In fact, China’s situation is a very worrisome one, with or without tariffs being added.

To fix the situation, China would need a very cheap, non-intermittent, locally produced, non-polluting additional energy source. This energy source would also need to be rapidly scalable. Such an energy resource doesn’t appear to be available.

 

 

 

 

 

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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890 Responses to Seven Reasons Why We Should Not Depend on Imported Goods from China

  1. SUPERTRAMP says:

    How did that happen?
    https://news.yahoo.com/fire-burns-control-philadelphia-refinery-094206534.html
    PHILADELPHIA (Reuters) – A massive fire at Philadelphia Energy Solutions Inc’s oil refinery on Friday damaged the largest U.S. East Coast plant to the point that it could remain shut for an extended period, according to Philadelphia city officials and company sources.
    As of late afternoon, the fire was “confined and contained,” but could not be put out entirely, because a connection line feeding fuel to the tank where a combination of propane and butane was burning could not yet be shut, Philadelphia Deputy Fire Commissioner Craig Murphy said in a press conference.
    The cause and extent of the damage were unclear, Murphy said
    YahooNEWS
    Massive Philadelphia refinery fire threatens facility’s future
    By Jarrett Renshaw
    By Jarrett Renshaw
    ReutersJune 21, 2019, 12:17 PM EDT
    By Jarrett Renshaw

    PHILADELPHIA (Reuters) – A massive fire at Philadelphia Energy Solutions Inc’s oil refinery on Friday damaged the largest U.S. East Coast plant to the point that it could remain shut for an extended period, according to Philadelphia city officials and company sources.

    As of late afternoon, the fire was “confined and contained,” but could not be put out entirely, because a connection line feeding fuel to the tank where a combination of propane and butane was burning could not yet be shut, Philadelphia Deputy Fire Commissioner Craig Murphy said in a press conference.

    The cause and extent of the damage were unclear, Murphy said.

    Several explosions sent a huge fireball into the sky, engulfing the surrounding areas in smoke after 4 a.m. EDT (0800 GMT), following the ignition of a fire that started in a tank at the 335,000 barrel-per-day (bpd) refining complex, also the oldest in the Northeast.

    By mid-afternoon, the city’s fire department was working with PES in its response to the fire, though it was letting the flammable gases burn under control. Murphy said PES was not yet able to access a valve that would shut the connection to the tank. The fire department could not entirely extinguish the fire as long as it is being fed fuel, he said.

    PES said in a statement it believed the product that was burning was “mostly propane.” Local news showed large water cannons continuing to hose down the site.

    Four workers were injured, according to a company statement, and treated on-site, while city emergency workers treated one person, who did not need to go to the hospital. The extent of the damage was unknown, but similar fires have shut refineries for months or years.

    “It was the worst I’ve ever experienced,” said a veteran refinery worker who was at the plant when the fire broke out.
    “It looked like a nuclear bomb went off. I thought we were all going to die.”
    The complex was still running at a reduced rate, PES said, but depending on the extent of the damage, there will be questions as to whether the company has enough money to rebuild.

    Why rebuild? The end of the Oil Age is upon us all….maybe it was arson?

    • Wow! That was quite the fire!

      I found an article saying that the refinery refines 335,000 barrels of oil a day. I imagine it supplies mostly to the East Coast.

    • Duncan Idaho says:

      Why rebuild?
      I’m sure the econ is being looked at– probably take 30 years to break even, and that is not happening.
      But as we know, econ often does not apply to oil these days, just look at shale.

  2. 2019 Indian heat wave
    https://en.wikipedia.org/wiki/2019_Indian_heat_wave

    I’m not so sorry fossil-fuel use may have maxed out.

    • Grant says:

      What’s the connection to fossil fuel?

      And what caused the longest recorded drought?

      • Tim Groves says:

        Inclement weather used to be put down to acts of God or the gods, as payback for the evil men do, or to witches casting spells. Nowadays we’ve cut out the supernatural elements, but some of us can’t give up the basic superstition that the weather is a punishment for our sins.

        • I am afraid you are right.

          Of course, we have come back to thinking we can influence the weather, as well. Instead of rain dances or human sacrifice, we have decided to kill off fossil fuel providers because they seem to be the sinful actors.

  3. MG says:

    What a week: This morning a man from the neighbouring village shot 3 men at the disco in another neighbouring village, one of them died. They write he had bunkers in the surrounding woods and fields:

    https://m.topky.sk/cl/100370/1804005/Pri-tragickej-strelbe-zahynul-mlady-Jakub–FOTO-Dvaja-su-v-kritickom-stave–ozbrojeneho-muza-zadrzali

    3 men were shot dead in total in this week in my surroundings:

    https://m.topky.sk/cl/10/1802705/Vrazda-v-Dubnici–mrazive-detaily-priamo-z-miesta-cinu–Obeti-malo-byt-viac–FOTO-strelca

    I feel less and less secure…

    • MG says:

      Is the Sun leaving us again here in the Northern Hemisphere as from this week? Then surely, this is energy implosion…

    • MG says:

      Sometimes the killer simply fullfills the hidden wishes of the people: like the one who killed the given foreman. The rumour is that various people feel better when this foreman as their manager was killed. The other side of the picture is that this foreman just fullfilled the wishes of the higher managers and the owners of the company: achieving the profit.

      But how can you achieve a profit when it is harder and harder to achieve it? This is the saddest part of the story, i. e. when you become a victim of the system that pursues growth that is no longer possible.

  4. Rodster says:

    “Feeling the Heat of a Civilization on the Downside”

    ..or as it has been said before, there is nothing we can do because the Clowns are in charge of the circus.

    https://www.zerohedge.com/news/2019-06-22/feeling-heat-civilization-downside

  5. MG says:

    More and more frail women in jobs that were the domain of the muscle men here in Slovakia before:

    The 2 examples that caught my attention: the heavy trucks drivers, the prison guards.

    • SuperTramp says:

      MG, bet these women doing these masculine jobs as truck drivers or prison guards are getting a lower pay scale than their male counterparts! That’s the norm here in the United States, even if it’s suppose to be against discrimination regulations.
      As far as not feeling secure….just got my Concealed Weapons License for Florida.
      I feel more secure already! What did the Beatles sing…”Happiness is a Warm Gun!”
      Just in case, it is obvious there is too much money in it to stop selling guns.
      Too many killings and nothing being done, the NRA is too powerful lobby here in USA.
      So, if you can’t beat them, pack one!

      • Duncan Idaho says:

        Truth flows from the barrel of a gun–
        -Mao

      • MG says:

        I do not think that having a gun can solve anything, e.g. you can be attacked by an insane person or a person influenced by drugs unexpectedly, from some hidden places etc. This is the problem now, the people mask more and more.

        Even the men spend more on cosmetics:

        https://ekonomika.sme.sk/c/22151280/muzi-sa-chcu-o-seba-starat-viac-vyhladavaju-bb-kremy-aj-krycie-tycinky.html?ref=trz

        “Research shows that just like many women, men today are increasingly dissatisfied with their bodies.”

      • DJ says:

        I wonder what percentage of bad situations could be avoided by having a gun, provided you can actually use it.

        • SuperTramp says:

          Just go to the website…”Surviving in Argentina”….plenty of examples of why gun ownership is a prudent act. Hopefully, will NEVER have to use it in an encounter, but if the SHTF, like in Argentina, a “must have” item to have on hand, with plenty of ammo and needless to point out, adequate training , safety and practice.
          Owning a firearm holds great responsibility and duties. One should not take likely.
          Here in Florida, unlike other parts of the world, not difficult to purchase one online or in a shop. Must have a 10 day waiting period and pass a quick background check, be over 21.
          That’s about it and answer a list of questions on the FFL form.
          What can I say, easy peasy.

        • Xabier says:

          If you watch videos of gun fights from Argentina, you will see that the criminals are still very bold, even though they know they can expect the target to be legally armed: they rely on being more numerous, on surprise, on taking hostages, on the target being scared and shaky. And they may be on drugs,

          Just like S Africa: guns do not scare people away, but may help you to survive.

          Also, big dogs.

          Train, train, train or a gun is next to useless. And close-quarters a knife can be faster, which is also a survival factor. I’ve seen police with automatics killed by a knifeman who was faster because they under-estimated him.

          Very brutal place, which is why my step-mother and her friends left (also high rate of rapes and general street robbery) even before the big crisis which caused an explosion of crime by very desperate people.

  6. SuperTramp says:

    Surprise, surprise!
    Bloomberg) — Japan is still winning the Southeast Asia infrastructure race against China, with pending projects worth almost one and a half times its rival, according to the latest data from Fitch Solutions.
    Japanese-backed projects in the region’s six biggest economies — Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam — are valued at $367 billion, the figures show. China’s tally is $255 billion.
    The figures underline both the rampant need for infrastructure development in Southeast Asia, as well as Japan’s dominance over China, despite President Xi Jinping’s push to spend on railways and ports via his signature Belt and Road Initiative. The Asian Development Bank has estimated that Southeast Asia’s economies will need $210 billion a year in infrastructure investment from 2016 to 2030, just to keep up the momentum in economic growth
    https://finance.yahoo.com/news/china-no-match-japan-southeast-000000230.html
    Vietnam is by far the biggest focus for Japan’s infrastructure involvement, with pending projects worth $209 billion — more than half of Japan’s total. That includes a $58.7 billion high-speed railway between Hanoi and Ho Chi Minh City in Vietnam.
    For China, Indonesia is the primary customer, making up $93 billion, or 36%, of its overall. The prized project there is the Kayan River hydropower plant, valued at $17.8 billion.
    Across all of Southeast Asia and by number of projects, Japan also carries the day, though by a smaller margin: 240 infrastructure ventures have Japanese backing, versus 210 for China in all 10 Southeast Asian economies

    BAU full speed pedal to the metal…

    • I hadn’t heard the idea that Japan is ahead of China in infrastructure spending in Southeast Asia. High speed electric trains always sound iffy. Transporting goods, not necessarily rapidly, is important for commerce. High speed transport of people doesn’t add much. Airplanes would seem to be more flexible, if speed is needed.

      • SUPERTRAMP says:

        At this point in the game, does it really matter? Sounds like the high speed rail is a symbolic unification political project to unit the North to the South as one.
        Yes, I was surprised myself Japan has a leg up on China. I know Vietnam and China in the past have had their squabbles. So it makes sense that Japan has a presence there.
        Many immigrants from CHINA are in Indonesia and have commercial ties with the mainland, so that makes sense too.
        Oh, from what Ive read, China is also investing in airport projects too.
        Beijing is building hundreds of airports as millions of Chinese take to the skies
        https://www.cnn.com/travel/article/china-new-airports/index.html
        World’s largest aviation market
        Even as China is on course to overtake the United States as the world’s biggest air travel market within the next three years, the country’s hunger for aviation seems set to continue growing exponentially.
        To sate that hunger, the government has embarked on an airport building program on a scale rarely witnessed before anywhere. Billions upon billions of dollars are being poured into runways and terminals that will plug the entire country directly into the global transport network.
        China currently has around 235 airports, but with many lacking the capacity to sustain the coming increase in passenger numbers and flights, government officials estimate around 450 airports will be needed across the country by 2035
        How about THAT!
        That should help keeping BAU alive

      • Grant says:

        But Japan does not have Aerospace technology to compete with China whereas they can compete in the area of High Speed trains. Especially since they don’t seem likely to need any more HSTs of their own or a while so exporting the tech is the only way to keep the industry relevant. And put one over on the Chinese.

        Quite why Vietnam needs a HST remains to be seen but a good salesman with a decent product and few sales opportunities will know all of the way to influence a prospective client dreaming of grand schemes and a place in history.

        it would be one way of taking the cash from selling shoes without having to manufacture the shoes in the first place. Must look up the other main exports from Vietnam.

      • HST is not main thrust of this topic.

        It’s rather about overall industrial capacity outsourcing (and investment development) of China vs Japan. And Japan ruled (made factories) there between the wars already.. therefore much more experience. Also they tend to focus on a bit different market segments (aka Chinese ‘crap’ vs Japanese ‘reliability’ at decent price level..)

        So, to me even the article might be a bit of propaganda piece, nevertheless it documents how Chinese expansion strategy is severely under many other stress factors..

      • Xabier says:

        HST has become a totem of modernity and ‘progess’.

        Much economic activity is now merely totemism and cargo-cults.

      • Kowalainen says:

        That goes until you try the Japanese high-speed rail service and then find yourself cringe every time you have to take that god awful domestic flight.

        Their new Shinkansen Alpha-X rips through the landscape at close to 400km/h. By the time you are still sweating and panting in the airport check-in queue and security check, you sit comfortably with ample leg space, holding a cup of green tea while the high-speed service is presenting you with the magnificence of mount Fuji as the rail bound high-tech wizardry passes by the still-active volcano at ridiculous speeds.

        Heavy infrastructure investment is indeed the right way to go for upholding economic growth and increase the competitiveness of the country while keeping the lesser productive populace with jobs.

        It is a matter of national pride as well. If your country isn’t capable of produce advanced rail bound infrastructure, then what are you really good for? Slap down another motorway that will be left to decay perhaps?

        Just look at it; thing of beauty. Shape inspired by nature itself.

        • As long as you don’t need to take luggage with you, train services works OK.

          Domestic air service works better if a person has luggage. If I remember correctly, the rapid train service did not connect up with international flights. In fact, I am not certain they connected up with the airport at all.

          • Kowalainen says:

            You are right, the HST service in Japan is mainly from city center to city center. The airports are for obvious reasons not too close to these areas. Which is also the reason why it is very fast and convenient for domestic travels.

            Did you try out Shinkansen on your trips to Japan? Your suit case can be stowed away in luggage compartments between the cars.

            Imagine business class international flights, plenty of leg room, much more silent, basically virtually totally silent and a smooth ride on the well-maintained tracks with no take offs, landings and air bumps. And most importantly, no check ins, security checks, irritating pat-downs, queuing and scurrying around in the sprawling airports.

            It is first class transportation and there is a lesson to be learned from the Chinese adoption of this system. Perhaps we should do the same?

            Just burn the coal required, lay down the tracks, it “creates” jobs and economic activity to keep off the deflationary demon while upgrading the domestic transportation system.

        • Grant says:

          What outright NEED does it service that could not be eliminated or achieved some other way?

          Japan is relatively special for a smaller country (by land area) in that most of its development is strung out along coastal strips.

          Having the potential for relatively long sections of high speed ability linking large areas of conurbation potentially makes sense – until one finds a way to avoid the travel. The challenge is whether the availability of the service in some ways simply creates a need for itself. Do people start to commute longer distances to work because it becomes just about viable in terms of both time used and the fiscal rebalancing that is inevitably required?

          China, as will be obvious, has vast distances that its population will likely need to travel for both business and social purposes and a huge population to cater for. Again that requirement potentially makes some sense to use rail alongside air. At least the things can start moving and keep moving at speed that makes then viable for journey times.

          The size of France just about justifies what they have build of their HST network but the German experience may not be quite as effective.

          In the UK the proposed HS2 development seems to be very expensive and very limited by capacity considerations.

          Like most airports there will be a need to travel from where you wish to start you journey to get to a terminus. Go through an air travel type of security and boarding operation. Make the journey, some of it at the advertised speed and save, perhaps 20% of the existing journey time by rail city centre to city centre, but end up 20 miles from where you wish to be.

          By the time it is likely to become operational I would guess that our imaginative Law Makers will have mandated electric only vehicle transport with severely restricted speed capabilities in order to support some dreadful and overly complicated Autonomous driving mode.

          Nevertheless I would bet that the door to door journey time that ought to be available would be no longer than the 3 part travel via the HS2 system and would have the benefit af allowing work or leisure activity along the way in some personal or family space. Luggage need only be loaded once and unloaded once.

          Extend the route to several hundred mile and the benefits of the train might come to the fore. But then it would be in competition with flying – if it has not been banned – where the inconvenience factors at the start and end of the journeys would likely be relatively similar.

          Of course that STILL assumes that there is some useful purpose to the travel activity by the time the world reaches the target dates involved by the time the world economy has spent another 20 years “developing”.

          • Kowalainen says:

            It is an established fact that economic activity is closely correlated with transportation efficiency.

            Domestic flights are a cringe fest of inefficiency and inconvenience.

            Furthermore, you need to closely study how the Japanese rail network creates a more decentralized economy with people moving away from the very densely populated areas and still can maintain their time proximity to larger cities.

            If you have ever been taking a trip in Shinkansen, then you are well aware of the huge investments required to drill through the Japanese hilly landscape to lay down the HST tracks and other infrastructure.

            The whole point of high speed rail is to bring cities and people closer together without having to resort to centralization.

            Of course the economy of the future will be coal powered and connected by rail. The kerosene should be saved for international flights.

            It is beyond me why the obvious superiority of such a system even sparks counter arguments such as yours. Just burn more coal and lay down the tracks. It creates jobs and a better society.

            • Grant says:

              As I have said previously I don’t think the conceptual benefits necessarily apply in all countries. Certainly not in the same way.

              Here in the UK High Speed rail travel *but not ultra-high speed travel) has been around for several decades. It works at speeds that are suitable for scheduling for maximum serviceability for most people who need to travel.

              Those commuting more locally into major conurbations – notably London of course – will benefit little and perhaps not at all, even peripherally, from the latest proposals for the HS2 development.

              IN the UK bringing cities closer together is being achieved by building development that removes any gaps and creates a spreading conurbation that will eventually join them into massive areas of concrete, bricks, mortar steel and tarmac of a sort that is more likely to hinder productivity than help it (IMO) and in effect just creates new ‘centres’ without any identity or individuality of purpose.

              There is precious little evidence that I have seen that (almost) connecting the largest city to the second largest city using a system that will be constrained in its maximum carrying potential by is likely to create more jobs (beyond those required to run the system minus those no longer required elsewhere because of the system) or a better society (whatever that means).

              Nice objectives, certainly, but for the tens of Billions of £££s this is currently estimated to cost, and rising with decades to go, There are likely more effective ways of ‘boosting the economy’ with this alleged ‘cash’. Things that would have a more immediate effect and return on the various types of ‘capital’ invested.

              Just my opinion of course.

            • Maybe high speed rail needs to be thought of as an extension to the suburban commuter rail system. It allows a person to commute among nearby cities, almost as if you lived in them.

              If your needs are more diverse, or you need to transport goods as well as people, it doesn’t work as well. When we needed to got to trans Atlantic flights, we didn’t find high speed rail helpful.

            • Kowalainen says:

              Of course long haul flights are a necessity. I actually argue for more international flights bringing countries and economies closer together and improving overall economic efficiency and activity. Better make the mid size domestic airports handle larger airplanes for international flights, or shut the smaller ones down completely, than obstinately crowding the airspace with various barely airworthy and rickety kerosene burners.

              It’s so simple really, a properly built and maintained HST system is superior to domestic flights. Why is it even worthy of debate? Just go to Japan and experience it yourself and compare with the run of the mill sprawling US/EU airport with all of its millions inconveniences.

              Just because you are used to something does not mean you are incapable of taking in the advantages of other things, or does it perhaps? Has dogma gotten in your way when all you see is congested roads, crappy train service and the cringe fest of domestic air transportation.

              Is it that hard to take in the obvious advantages of creating jobs in the process, burning more coal as the US/EU is building and operating the HST rail network?

              Let’s lay down the tracks and crank it up to 11.

    • Nice find, thanks.
      On similar note, It would be interesting if out of the next recession and or GFC_vXY, against the dominating narrative, specifically China ends up as holding the looser card in comparison to US, Japan etc.. BAU extensions for ever (at least ~two more decades)!

      • Tim Groves says:

        Pssst! Don’t tell everyone, but Japan and China are cooperating with each other at least as much as they are competing against each other. Neither one of them can create a greater East Asian co-prosperity sphere all on their own, but together they make a great tag team.

        • Interesting observation!

        • Kowalainen says:

          A coal powered Asian HST arms race. Why not. Sounds peaceful enough for me. I like it.

          Collapse should indeed be met with style, speed and grandeur instead of with the horrors of bloated consumerism.

          I really like the Japanese countryside. The Japanese house I stayed in this spring had a barn swallow nest in the “genkan”. Did you know that the barn swallow is among the few known species that domesticated the wicked ape Homo Sapiens Sapiens.

          Who wouldn’t like to see this scenery pass you by at ridiculous speeds as you sit comfortably in your Japanese or Chinese coal powered HST machinery of industrial might, magic and technological prowess.

          At least I do, and I can.

  7. Pingback: June 23, 2019 – Aporia Cafe

  8. SuperTramp says:

    This is good, isn’t it?
    U.S. consumer debt is now above levels hit during the 2008 financial crisis
    Mark DeCambre
    MarketWatchJune 21, 2019, 5:13 PM
    Consumer debt is growing to worrisome levels. Ben Mohr, senior research analyst of fixed income at investment consultant Marquette Associates, calculated that total U.S. consumer debt hit $14 trillion in the first quarter of 2019, surpassing the roughly $13 trillion of leverage accumulated in credit cards, auto loans and mortgages and other debt back in 2008, when those souring loans and securities pegged to them helped to send global markets into a tailspin (see attached chart). Mohr told MarketWatch that the increase in student loans — often cited as a source of consternation for economists and strategists — saw a notable increase
    Boy, the next financial crisis should be a doozy! Just around the bend, Tonto.

  9. SuperTramp says:

    Aahh., Something we discussed here at OFW…mainstream news now…how about that!
    A worthless degree? Betsy DeVos wants to change rules for which colleges stay open, close
    https://www.yahoo.com/lifestyle/worthless-degree-betsy-devos-wants-155459589.html

    Alexis Gurrola, a dental assisting student at Brightwood College, said she was told Wednesday, December 5, 2018 that the college was closing. She said students and staff were told they would finish out the week, but that classes would not resume next week.

    Many of them still struggle. In a Facebook group for students of the closed college, some commiserate over what they call worthless degrees. Others try to give advice about how to get their student loan discharged or receive their transcripts.
    What’s more, the Accrediting Council of Independent Colleges and Schools had a checkered history itself. President Barack Obama’s administration had moved to strip it of its powers to OK school programs, but after a legal battle, President Donald Trump’s administration undid that move.
    The Education Corp. of America colleges were just some of the institutions that suddenly closed in recent years. ITT Tech closed in 2016. Corinthian Colleges did the same in 2015. Both had been accredited by ACICS. The accrediting group said it gave multiple warnings, but the colleges weren’t able to meet its standards
    Now, the Education Department is looking to change the arcane and bureaucratic process of accreditation.
    Education Secretary Betsy DeVos and accreditors of universities say new rules will ultimately allow colleges to offer programs more quickly and effectively. That means students landing a job in fields that are hiring, they say.
    “With these reforms, our nation’s colleges and universities can spend more time and effort on serving students and less time, energy, and money focused on bureaucratic compliance,” DeVos said in a statement.
    Critics of the newly proposed rules say they would make it easier for shady colleges to operate for longer and with less federal oversight.
    “What these regulations really do is make it so it is much harder to hold those schools accountable,” McCann said.
    If anything, the government should hold these agencies to a higher standard, she said.
    The public has until July 12 to give feedback on the proposed changes. Here’s what you should know.
    Sounds like the new improved regulations for the financial industry….whatever it takes!

    • The whole educational system seems to provide multiple services simultaneously. It keeps young people out of the workforce. When children are young, it provides baby sitting services so that parents can go to work. It does to some extent educate for jobs, and also gives some version of general background.

      In many countries, advanced education is restricted. Tests are give to figure out which children will advance to the next level. In the US, this is less the case. Anyone can apply for higher education, even with poor previous grades. For profit schools seem to particularly take advantage of this, and offer entrance to those who have little chance of finishing. But even public colleges offer far too many young people degrees in subjects where at most a few with advanced education are needed.

      There are all kinds of other issues involved, including competition for elite status by having most of the faculty involved in publishing (mostly useless or worse) academic papers. Actual teaching is left to poorly paid adjunct faculty members.

      • MG says:

        This is a very good observation: the educational system is a collective baby sitting service.

        Lets name the reality as it is, because in our era of information present on cheap smartphones there is no need to move to another place (i.e. school) to get the information.

  10. Dennis L. says:

    Some of you might find this guy interesting, it was my first experience with his ideas although I am told he posted to the OD some years previous Gail probably knows him.
    http://www.oil-price.net/en/articles/waking-into-volatile-oil-prices.php

    Dennis L.

    • I have corresponded with Tom Therramus over the years, but never met him in person. We posted some of his posts on The Oil Drum. I don’t think I have posted any on OFW, in part because I do few guest posts. His approach is somewhat related to technical analysis of stock prices. It often seems to work, but it is not easy to see why. Increased price volatility is to me a sign that no price is really acceptable to both buyers and sellers. It is a sign that the end is likely not too far away.

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