Zombie factories haunt China

molten steel in steel plant

When China was booming, they couldn’t keep up with the demand for steel and cement. Now things are slowing down, and the over-investment in factories is leading to zombie factories that the government is afraid to let die.

When you read this article you get another glimpse as to why the China experiment may end badly. In the rush to move hundreds of millions of people from the farms to the cities, too much money was poured into more factories and apartments that weren’t needed. Central planning can work for a while, but then economic reality sets in, and projects built more to line the pockets of local officials end up being a huge drain on the overall economy.

China Devalues Yuan

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Is the Chinese government getting desperate?

Lately they’ve been manipulating the stock market and encouraging retail investors to keep buying volatile stocks.

Now they’re devaluing the Yuan again in response to weak economic data.

Is China a house of cards? There’s plenty of economic might there, but you have an economy centrally planned by dictators, and local economies planned by corrupt government officials.

How this all ends is anyone’s guess.

Concerns mount regarding Chinese economy

David Ignatius is one of the more balanced commentators you’ll find, so when he write a piece stressing “warning signs” in China, it’s worth a read.

The government in China is trying to address the staggering amount of corruption, yet this effort seems to be having a destabilizing effect. Also, there are tons of bad loans in China and what appears to be a massive real estate bubble.

All of this spells trouble, and recent real estate sell-offs and bond sale cancellations have observers worried.

China pushes its economic leverage

Chinese woman working on laptop

The rise of China and its impact on economies all over the world isn’t a new story, but this overview in the New York Times is worth reading. The tone is one of looking at the downside of China’s economic empire and the unwillingness of desperate partners like European nations to assert themselves. But there is an upside, as China can provide much needed capital to struggling countries, and this also gives China a huge stake in stability around the world. There are certainly concerns on issues like the environment and human rights, but one needs to look at the big picture as well. Fortunately, President Obama’s foreign policy is aimed at engaging but also containing China, and he has been willing to use our own leverage in this relationship.

Challenges for shale gas in China

drilling rig at sunset

The shale gas fracking boom in the United States has been a game-changer for the US economy and energy needs. Now other countries are looking to exploit this potential in their own country, and the potential in China is huge. That said, there are also many challenges to making this a reality in China.

In China there’s a giddy feeling that the next energy gold rush is about to begin. Beneath the mountains of Sichuan province, the deserts of Xinjiang, and elsewhere, China contains twice the shale- gas reserves as the U.S., says the U.S. Energy Information Administration. China’s national planners enthusiastically back boosting natural gas production, which accounts for just 4 percent of the country’s total energy mix now. The government wants to double that share by 2015. “There’s a lot of exuberance,” says Zhou Xizhou, who leads the research firm IHS Cera’s China Energy practice. “In Beijing, if you work in energy, you probably receive a shale-gas conference notice every week.”

The impact of a shale-gas boom in China will be enormous, with the potential benefits and likely environmental costs perhaps even greater than in the U.S. So far, though, the output in China has been a trickle because of the challenging geography and the monopolistic structure of China’s oil and gas sector. While about 200,000 of the horizontal wells used in fracking have been drilled in the U.S., China has about 60. China has 1,275 trillion cubic feet of shale-gas reserves, compared with 637 trillion cubic feet for the U.S.

The U.S. shale-gas revolution was launched largely on the flatlands of Texas, North Dakota, Pennsylvania, and other accessible areas. In China’s mountainous Sichuan basin, “the formations seem to be more faulted and folded, which makes it more difficult and less economic to drill long horizontal well bores,” says Briana Mordick, an Oil & Gas Science Fellow at the Natural Resources Defense Council and formerly a geologist at Anadarko Petroleum.

It will be interesting to see how this develops. Some environmentalists hate the fracking boom, while others acknowledge that new natural gas tends to replace the much dirtier coal as an energy source, which is a huge plus for the environment. China’s future coal plans have terrified the rest of the world. If they can figure out fracking, perhaps the net gains in carbon emissions can be mitigated.

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