Chinese/American Consumption Math

December 9, 2009
Recession Elsewhere, but It’s Booming in China

Automakers are on track to sell 12.8 million cars and light trucks in China this year, virtually all of them made in China (although many are foreign brands), compared with 10.3 million in the United States. Appliance manufacturers expect to sell 185 million refrigerators, washing machines and other pieces of kitchen and laundry equipment in China this year, compared with 137 million in the American market.

By volume, the Chinese are slightly outspending us.

The size of China’s consumer market, notwithstanding its growth, will make it hard for China to rescue the world economy by itself. Total consumer spending in China is still less than a sixth of American consumer spending at current prices and exchange rates.

By price, we are massively outspending them. Is it any wonder China likes to sell us goods?

The Chinese can afford the cheaper cars apparently, but can they afford to pay what we do for gasoline? I don't think so.

December 9, 2009
A Land Where Car Sales Leap, but Gasoline Sales Stay Flat

GUANGZHOU, China — Auto sales are so strong in China that an unusual conspiracy theory has circulated on Western stock markets this month: the Chinese government must be secretly buying hundreds of thousands of cars and parking them somewhere.

The main evidence presented for the theory is that the number of gallons of gasoline consumed in China has been flat this year. But auto executives and Chinese buyers deny the rumor, which has spread so widely that economists have begun producing reports on why it is implausible.

I don't think it is a conspiracy. I don't think the Chinese government is secretly buying and parking cars. I have a much simpler theory.

1. You really, really want a car.
2. You think you can afford it.
3. You are told you can afford it.
4. You buy a car.
5. You really, really don't want to pay for gasoline though.
6. You know you can't afford it.

It seems very similar to subprime home ownership to me.

1. You really, really want a house.
2. You think you can afford it.
3. You are told you can afford it.
4. You buy a house.
5. You really, really don't want to pay the power bill though.
6. You know you can't afford it.

November 9, 2009
China Raises Fuel Prices; Sinopec, PetroChina Gain (Update1)

Pump prices for 90 octane gasoline will be set at a maximum of 5.98 yuan (88 cents) a liter, or about 22.6 yuan a gallon, in Beijing, National Development and Reform Commission, China’s top economic planner, said on its Web site yesterday. The price increases of as much as 8 percent boosted shares of China Petroleum & Chemical Corp. and PetroChina Co., the nation’s two largest refiners.

1 Chinese yuan = 0.146469 U.S. dollars

That works out to $3.31 per gallon. You think we have sticker shock when we look at gasoline prices? Just think what the Chinese see. It boggles the mind.

For what it is worth, I have no interest in investing in China. I think it screams bubble. This is probably the most important decision to make when investing today though. If China is in a bubble it would have huge implications for all investments, commodities in particular.

December 10, 2009
China imposes tougher home sale tax to control bubble

China's central government, facing rising complaints about soaring home prices, has moved to control bubbles in its real estate sector, by re-imposing a tough sales tax on homes sold within five years of purchase.

They are officially in the inflationary complaint stage.

China in January cut the sales tax on the vehicles to 5 percent from 10 percent between January 20 and December 31. It introduced the incentive to revive demand after auto sales rose at the slowest pace in a decade last year. The rate will be 7.5 percent next year, the State Council statement said.

Taking from housing and giving to autos? Does anyone really think that is going to fix anything?