Red Dawn! Chinese state banks to enter US market

You just want to summon your inner Yakov Smirnov:

In America, banks loan you money.

In China, you loan banks money!

WSj front-page lead on "Chinese banks get nod in U.S."  The Fed Reserve okayed 3 state-run banks to enter and apparently didn't stop the first ever acquisition of a U.S. retail bank by one of them.

The goal of Chinese banks?  Initially, to service Chinese companies operating overseas and those foreign investors looking for "exposure" to the renminbi.

Exposure is the key word here - in both directions.  But, in general, I heartily approve.

China is the biggest saver in the system these past couple decades.  So yeah, access is crucial for an economy with shakey finances.

Of course, China's financial system has its own dangers, but - again - in general I greatly approve of even more financial interdependence.  

It'll help keep the China crazies inside the Pentagon on a leash.

Chart of the day: Why GM and SAIC naturally decided to pair up

Pretty obvious, actually. 

Far short of merger, but the same logic holds:  you are weak where I am strong and vice versa.  Why not ally and crush all opposition on global basis.

This would-be globally integrated enterprise as a preview of globalization's coming attractions.

From an Economist story on Chinese carmakers.

To what extent China can copycat the fracking revolution in US

Big FT piece.

China, we are told, has enough shale gas to cover its needs for 200 years.  It currently has no commercial production but wants to reach 60B cubic meters by 2020. A number of big Chinese and foreign energy firms are currently exploring China, with Sinopec running the big Tarim basin that is routinely described as the biggest in the world.

Dozens of exploratory wells have, so far, yielded mixed results.  The geology is just not the same as the US - more complex, so serious additional innovation will be required.  China's reserves are deeply buried and feature more clay, which is far harder to break up to release the gas.

China also lacks the US's existing pipeline network and trained personnel.

To overcome the stiffness of its three primary national energy companies, China has allowed foreign companies in and plans to liberalize prices on oil so its own companies will invest more.

Then there's the Chinese investment in US firms over here, a development that's been met with far less resistance than when CNOOC tried to buy Unocal seven years ago.  CNOOC plopped a solid $2b into Chesapeake Energy to access some of this technology.

This will be one follow-on to the US fracking revolution worth watching closely.

How fast King Coal gets fracked

Fascinating to watch all the "they're trying to kill clean coal" commercials on TV that target some politician, the Obama administration or so on (evil regulators).  In truth, what's killing King Coal right now is the uber-cheap price of gas in the US.  

Citing a WSJ story, the millions BTU price of natural gas in the US is about half of what it was just a year ago, and that previous price was at least half of the average global price - which is rising in most places given the lack of LNG and the difficulty in buying it for most emerging market players.

So, amidst that crazy glut in the US, made all the more worse by the mild winter that did not much draw down US natural gas stocks, and we're seeing stunning drops in the US use of coal to generate electricity. It fell by almost one-fifth (!) in the fourth quarter of last year, and we're expecting first quarter news any day now.

But as I've noted before, the answer for coal is exports.  The energy value of our coal is significantly higher than that found just about anywhere else, so if new market export relationships can be built, we can displace a lot of less-valuable coal from other sources.

My prediction is that America becomes a huge and important coal source for both India and China.  Just give it enough market change.

What got me tuned in on all this?  Wikistrat's recent simulation on the "North American Energy Export Boom."

Chart of the day: remittance "corridors"

From the Economist.

I just love global maps indicating flows - naturally.

What do we see here?

Per my vernacular, in sheer volumen we see New Core being fed remittances by expats living in Old Core.  But when it comes to countries relying heavily on remittances as percentage of GDP, it tends to be mostly Old/some New Core and it all pretty much goes to Gap countries.

Per my flow concept:  whatever the resource, it flows from regions where it is plentiful (here, earning opportunities) to where it is less so.  Yes, we think of India, China, Mexico as New Core and thus "made," but all share the reality of significant numbers of rural poor.  In truth, in most New Core countries, there is massive internal remittances flows.

What I love about this:  this is the best foreign aid there is, because people use it as they see fit.  

You may say to yourself:  What a drain on Core - especially US!

Studies have shown, however, that expats living in new countries spend something like 90% of their earnings in-country, sending about 1/10th home.  It's just that those flows still number in the billions, swamping anything we do on official developmental aid.

Final column at World Politics Review

The New Rules: Globalization's Future Depends on Stable U.S.-China-India Order

BY THOMAS P.M. BARNETT | 30 APR 2012
COLUMN

Editor's note: This will be the final appearance of Thomas P.M. Barnett's "The New Rules" column at World Politics Review. We'd like to take this opportunity to thank Tom for the insightful, compelling analysis he has offered WPR readers each week for the past three years, as well as for the support he has shown for WPR over that time. We wish him continued success.  

Amid all our current fears regarding the global economy’s potential “double dip” back into deep recession, a longer-term question stands out: How can a supposedly declining America protect the golden goose that is globalization while managing the rise of twin economic superpowers in the East -- namely, China and India? History says that three is a crowd when it comes to system stability. Invariably, some conflict will arise to trigger a two-against-one dynamic that must yield to either the stable stand-off of bipolarity, as during the Cold War, or the emergence through decisive conflict of an acknowledged unipolar hegemon, as in the early post-Cold War period.

Read the entire column at World Politics Review.

Chart of the day: You can import the milk cows. The water is another story

Fascinating WSJ piece on China importing cows like crazy to build up its dairy stock.

Since 2009, China has become the world's most important buyer of dairy cows, driving up prices for calves world-wide and putting pressure on other markets such as alfalfa and bull semen. China has imported nearly 250,000 live heifers, or cows that haven't yet reproduced, since 2009, according to data tracker Global Trade Information Services. Last year it spent more than $250 million on 100,000 foreign heifers, about 25 ships worth.

China old cows were European and it has a cattle ban on North America since the mad-cow disease scare in 2003, so it's buying up stock in Australia, New Zeland - even as far as Uruguay.

Story describes the setting-up of modern American-style dairy farms (our cows outproduce the world on a per-head basis), but the trick is the amount of fresh water they require.  All the places they import these cows from are relatively water rich (more global freshwater share than population share), whereas China is 22% of the world pop with 7% of the water.

Tricky business, that.

But clearly, the attempt shows how intent China is on continuing to try and remain food self-sufficient. China won't succeed, but it'll try like all get out.

Chart of the Day: Different listing of shale gas reserves globally

Previous one I had found (and used in brief) said:

1. China 36.1 trillion cubic meters
2. US 24.4
3. Argentina 21.9
4. Mexico 19.3
5. South Africa (didn't write down because not in Pac)
6. Australia 11.2
7. Canada 11.0

Here's an old post that has similar 1-5 ranking expressed in tcf (like below), and the weird thing is, it agrees exactly with the FT numbers for China, Argentina, Mexico and South Africa but puts the US at 862.

This one, in bit FT full-pager says:

1. China 1,275 tcf
2. Argentina 774
3. Mexico 681
4. South Africa 485
5. US 482
6. Australia 396
7. Canada 388

Big difference is US ranking/estimate.

Second one says EIA, as in U.S. Energy Information Agency, so I guess you gotta go with that one.  

Or is this just weird mistake by FT?

No mistake.  After some quick Googling it turns out the EIA said 862tcf a year ago and says 482tcf now, reducing its estimate of recoverable shale gas by 42%!

Betcha some industry experts refute that!

Will have to see where that number goes over time.

The coming American industrial renaissance

WSJ piece on Dow Chemical building . . .

. . .  a multi-billion-dollar plant to convert natural gas into the building blocks of plastic in this coastal city [Freeport TX, just south of Houston], becoming thelatest chemical maker to capitalize on abundant gas supplies that are helping spur a renaissance in U.S. manufacturing.

This is all wonderful news, but it doesn't stop up from still exporting a significant portion of our now severely glutted natural gas supplies to improve our trade deficit and empower our extractive industry further to take its revolutionary fracking techniques global.

Natural-gas futures closed Wednesday at $1.95 per million British thermal units, down 55% from a year ago and the lowest price in 10 years.

This is killing futher exploration and production in the U.S.

Why do we allow this glut to remain bottled up in the U.S.?  This crazy-ass notion of "energy independence."

GM casts its global lot with Shanghai Automotive

Favorite subject of mine, that I highlight in the current brief: the creation of what fmr IMB CEO Sam Palmisano calls "globally integrated enterprises."

GM links itself up with Shanghai Automotive Industry Corp to create a GIE that looks to take on Honda, Tata, VW, etc on a global basis while cementing GM's participation in China's booming domestic car market.

GM's tie-up with SAIC is considered one of the region's most successful. GM and its partners in China have a 14% share of the auto market, the world's largest. The company's sales volumes have grown 41% since 2009.

GM chief exec: "SAIC is the principal relationship that we have around the globe now [italics mine] and we expect that to be the case in the future."

GM and SAIC are now jointly eyeing exports to LATAM and eventual production there.

Amazing stuff, as GM impresses with its bold global vision and execution.

Canada looks east, as US market complications pile up

Per the recent Wikistrat simulation (North America's Export Energy Boom), Canada grows weary of the complications of exporting energy to the US market (see Keystone XL) and starts to spot easier venues going West to Asia:

Kinder Morgan Energy Partners LP KMP +0.40% said Thursday it will begin a $5 billion expansion of its Trans Mountain pipeline, nearly tripling the capacity of crude oil it can ship to Canada's west coast—the latest project aimed at moving the country's rising oil production to markets outside the U.S.

Currently, almost all Canadian crude exports travel to the U.S. While Canadian oil output has been climbing fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to U.S. refining markets is stretched. 

The resulting glut, and rising oil production in the U.S. itself, has depressed prices for Canadian crude.

Our dysfunctional politics not only scares off the Canadians, it creates the same weird glut dynamic amidst our fabulous boom in natural gas production.  While Asian markets scream for LNG and can't get nearly enough, we refuse to export. An objective look at that would suggest some dumbass mercantilist logic having gripped some immature rising economy, but - of course - those who seek to deny LNG exports have all sorts of economic illogic at their disposal.

Meanwhile, we demonize China over similar bouts of stupidity, but at least there you can spot some legitimate developmental logic (all those rural interior poor still to be delivered).

We are living through some very bad political leadership and have for years now. I think history will judge the Boomer generation as among the worst political leadership cohorts ever suffered by America.

The future of American agriculture has arrived

Been briefing and writing about this one going back to about . . . I wanna say 2006.  I remember the slide I had my old slidemaster Bradd Hayes generate for what was still the Blueprint for Action brief.

Here is the reality as captured in the piece: US demand flattening, China's skyrocketing - especially for dairy (it's a growing middle class, mind you).

The head of California Dairies: "We're in an evolution. No question."

Markets "once treated as an afterthought" are now "reshaping the relationship between rural America and the rest of the world."

What are you really exporting when you export milk - even milk powder?  Water.  Whether or not you take it out for packanging, a whole lot of water goes into milk - directly and indirectly.

That's why the Kiwis have been in the lead.

It wasn't just the geographic proximity but the excess of water on a per capita basis (New Zealand has about 5 times the water it needs).

California ag exports to China and HK are up 85% since 2008: "All of a sudden, milk powder has become this valuable commodity." The sent this year's Miss California to China to hawk pistachios.

Amber waves of grain, my friends, in a back-to-the-future development that marks the resurgence of the economy - with ag and energy in the lead.

And yeah, both are plenty high-tech.

Hollywood gets itself some Chinese

Old Jack Welch bit: you can't succeed in global economy without succeeding in China.

My addendum: you can't succeed in China unless you're Chinese.

Solution: Get yourself some Chinese.

Hollywood has seen overseas B.O. rise from a tiny share to well over half in recent years. More specifically, while the US market is flat, burgeoning middle class China's is booming.

WSJ sees two different markets, but I already see a Chinese market that, with incredible restrictions on the number of US imports, is already half-synched to our blockbuster mode.

You know about Spielberg already turning toward China for future financing.  This piece talks about Disney doing the same.  Co-productions will become the norm, connecting talent with bucks (literally).  Yes, nothing will change the flops-v-tentpoles ratio. Indeed, it is likely to rise in the short-run, but Hollywood is very adept at figuring these things out, much like Japan does in its very clever global marketing of anime.

In the meantime, we be treated to the glorious hysterics of the "Red Dawn" remake. [The Chinese dodged a movie bullet there, as the original script had them invading, but now we get the fantastically implausible depiction of North Korea doing the same - much like a recent (pretty good) video game "Homefront."  The kicker: MGM rebooted the script so as to not lose out on the growing Chinese box office.] But, over time, this will be a good collaboration and a bilateral image reshaper that benefits the planet.

WPR's The New Rules: Globalization in a Post-Hegemonic World

My third-to-last column at WPR:

International relations experts are pretty much down on everything nowadays. America, we are told, is incapable of global leadership: too discredited overseas, too few resources back home, too little will -- period. For a brief moment there, while China held up the global economy during the recent financial crisis, much credence was given to the notion that we were on the verge of a Chinese century. But that popular vision has also waned surprisingly quickly, and now the conventional wisdom centers on China’s great weaknesses, challenges and overall brittleness. Amazingly, where we spoke of a U.S.-China “G-2” arrangement just a few short years ago, now there is a sense that no one is in charge.

Read the entire column at World Politics Review.

States and localities fighting over hydrofracturing drilling

WSJ story about states pushing for fracking while localities fight them over noise and infrastructure that comes with it (want to police it more vigorously).  State lawmakers are enacting laws that restrict the rights of cities and counties to regulate these things and that's creating some genuine local resistance.  The states are seeing dollar signs in terms of tax revenue and are running a bit roughshod.

So we're starting - as usual - to see this fought out in courts (ex: seven PA towns suing the state over desire to use local zoning laws to regulate things; drilling company in NY appealing state court rulings that say towns can use zoning laws to ban fracking).  All sides naturally cite the "special interests" of their opponents.

Point being, the court fights are just beginning, introducing a certain regulatory uncertainty to the whole package. This was a prominent feature of one of the more negative scenarios we explored in Wikistrat's recent "North American Energy Export Boom" simulation.

WPR's The New Rules: Hubris Drives Mistrust in U.S.-China Relations

Writing in Foreign Affairs this month, Henry Kissinger opined that, when it comes to the future of Sino-American relations, “conflict is a choice, not a necessity.” Those are some serious words from one of history’s all-time realists, but more important than his analysis is the fact that he even felt the need to issue that public statement regarding these two ultimately codependent superpowers. A trusted part-time adviser to President Barack Obama, Kissinger knows he has the president’s ear on China, the target of this administration’s recently announced strategic military “pivot” toward East Asia.

Read the entire column at World Politics Review.

Wikistrat post @ CNN-GPS: New global sources of demand

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

When Americans are warned that the “era of cheap credit is over,” we’re really being told that the inherent advantage of owning the world’s reserve currency is coming to an end. No, it won’t happen overnight, because China’s renminbi is still far from becoming a serious rival.

But the end is coming all right, and it’ll make all that Thomas Friedman hyperbole about a “flat world” a whole lot more real. America simply won’t have the advantage of being able to float debt - of all kinds - as easily as we did in the past, which means we’ll need to compete more intensely on the price and quality of our goods.

The primary driver here is China’s need to shift from a super-saving economy to a super-consuming economy. It’s gone about as far as it can go with export-driven growth, and now it needs to turn on its domestic consumption big-time, but doing that means China’s willingness to finance the debts of others will decrease - thus the end of cheap credit.

So, accepting all that, what can America anticipate when it comes to new sources of demand in the global economy?  What are some of the hot goods and services of the coming years?  We asked Wikistrat's global community of strategists for some ideas, and here’s what they chose to highlight:

Read the entire post at CNN's GPS blog.

Wikistrat post @ CNN-GPS: Three visions for America

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

The U.S. economy is most definitely in recovery mode, but it’s the sort of recovery one experiences after a scary heart attack.  There is little confidence in being able to go uptempo. Fears persist about slipping into a permanent sort of disability.

Worse, many are resigned to the fact that big structural problems such as health care, tax reform, the federal deficit and education remain unaddressed by a political system that remains fiercely divided.

So America finds itself in a funny position: Clearly getting better and doing better than most of the West but almost completely lacking in self-confidence.  If this is “morning in America,” then most citizens have hit their snooze button.

This week’s Wikistrat’s drill explores this ambivalence in the face of mounting good economic news, asking our global community of experts to present their arguments for the U.S. economy’s possible mid-term (3-5 year) paths ahead.  We’ll start with the optimism and then let the darker thoughts pile up - much like most Americans today.

Read the entire post at CNN's GPS blog.

WPR's The New Rules: Make China the Face of the World Bank

When Robert Zoellick recently announced that he won’t seek a second term as president of the World Bank, representatives of numerous emerging-market countries issued a flood of statements decrying America’s 66-year lock on the position. Meanwhile, the Chinese went out of their way within the organization to express their firm desire to have a commanding say in who succeeds Zoellick. Insiders are predicting that an American will still win the spot and that the Chinese simply want to exercise a showy veto over the proceedings. That would be too bad, because there are a host of good reasons why Washington should presently burden Beijing with the job of running the World Bank.

Read the entire column at World Politics Review.

The case for exporting natural gas

WAPO reports that America surpasses Russia as world's biggest natural gas producer, but the WSJ notes that domestic prices have gotten so low with the NG glut that drillers are cutting back and local govs are seeing tax revenue shrink.

All that would change, of course, the minute we start exporting gas out of Louisiana and that new LNG export terminal there, but some in Congress, backed by certain industries and enviros, seek to block that. There is actually a proposed bill to block LNG exports until 2025.

This is why gas in the US is oftentimes 1/4 the price of LNG in Asia, and buyers there are crying out for gas.

So WAPO's editorial makes the case for exporting, attacking the notion that slighly higher electricity prices are worth all the benefits that can accrue:

But the benefits of expanded exports must be weighed against these predicted costs — which are neither inevitable nor dramatic. Among them would be a potentially significant reduction in the U.S. trade deficit, which would mean less need for the United States to borrow from its Asian trading partners. Foreign demand gives U.S. companies an incentive to produce more, which creates jobs; if they don’t expand production, then, over time, supply will dwindle, and domestic prices will creep up anyway. Don’t forget that taxes and other fees on gas production help state and local governments balance their books. Already, low prices, and the resulting reduction in drilling, have cost many communities revenue.

The silly chimera of "energy independence" looms in some of this anti-export thinking, but the real push is to keep gas incredibly cheap here relative to industrial and manufacturing competitors.  Problem is, the Nat Gas industry will not go along with being beggared, thus drilling slows down and the price will inevitably rise.

That's what happens when you go for win-lose instead of a win-win.