Archive for the ‘China’ Category

By responding to Trump, China blunders and ensures that “One China” is on the table

January 16, 2017

In the business world one of the first lessons we used to pound into our deal-makers (salesmen, contract negotiators, purchasers, …. ) was that it was “silence” that defined what was really “non-negotiable”. Bringing up such matters or even responding to any mention about what was “non-negotiable” was self-defeating and, in itself, put that matter on the table. Merely saying that something was “non-negotiable” was, in itself, sufficient for the opposing party to always try to keep it on the agenda.

Trump is bringing a business, deal-making approach to politics which even veteran diplomats are finding uncomfortable and incomprehensible. China’s Foreign Ministry has just declared that “One China” is “non negotiable”. That is a massive blunder by their conventional diplomats and bureaucrats. They have just ensured that in any future US/China talks, “One China” will always be present, even if only in pre-talk talks where China tries to keep it off the agenda.

By responding to Trump’s acceptance of a phone call from Taiwan’s president after his victory and a few tweets which followed his attacks on China’s economic “cheating” during the campaign, China has effectively just put “One China” on the table.

The Guardian: 

China has warned Donald Trump that he has no chance of striking a deal with Beijing involving Taiwan’s political status following the US president-elect’s latest controversial intervention on the subject.

The Chinese foreign ministry told Trump that the US’s longstanding “One China” policy, by which it does not challenge Beijing’s claim over the self-ruled island, was the political basis for all Sino-US relations.

In an interview with the Wall Street Journal on Saturday Trump said all options were on the table as he considered how he might reshape Washington’s relations with China, a country he accused of deliberately devaluing its currency in order to hamstring US businesses.

“Everything is under negotiation, including ‘One China’,” Trump said, referring to the US’s longstanding diplomatic decision not to challenge Beijing’s claim that Taiwan, an independently and democratically-ruled island, is part of its territory.

China’s foreign ministry hit back in a statement advising Trump, a billionaire property tycoon who has claimed “deals are my art form”, that he would never be able to achieve such a deal.

“There is only one China in the world, Taiwan is an inalienable region of China, and the government of the People’s Republic of China is the only legitimate government representing China,” spokesperson Lu Kang was quoted as saying.

“The ‘One China’ principle, which is the political foundation of the China-US relations, is non-negotiable.”

If this was a chess game, Trump’s tweets are giving him the first move with the white pieces. In chess parlance he has the “tempo”. So far, the Chinese – who are more conservative than is sometimes thought – have not quite caught onto the game that is being played. It is negotiation by tweets. They may well get the US to continue to accept “One China”. But it is going to cost them something else.

Trump has not even entered office and negotiations have started.


A flying boat or a swimming aircraft? China rolls out the AG600

July 25, 2016

China unveils AG600 – Peoples Daily

AVIC TA-600, Flying boat
The AVIC TA-600, also known as AG-600, is a large amphibious flying boat that is being designed and built in China by the Aviation Industry Corporation of China.  
Top speed: 570 km/h, Wingspan: 40 m, Length: 40 m Maximum take-off weight 51.5 t.
Manufacturer: Aviation Industry Corporation of China Wikipedia
AG600 - AVIC
China has just rolled out the world’s largest amphibious plane, AVIC’s TA600 designated the AG600.  The AG600 is intended
to fight forest fires and be used for maritime search and rescue (SAR) operations. Being able to land on water means that they can quickly pump in tons of water to fight forest fires. For SAR purposes, the ability of large seaplanes like the TA-600 to land directly near survivors means more rapid rescue responses compared to slower helicopters, which will be attractive to Chinese maritime enforcement agencies. Perhaps most important to current regional tensions, the TA-600 may also offer a new scale and means to rapidly deploy or resupply any current or new remote island garrisons in the South China Sea. A number of islets and reefs are too small to have runways to accommodate conventional transport planes like the Y-8, but sited so as to have strategic value.
It is not as large as the eight-engined Howard Hughes H-4 “Spruce Goose”, the largest seaplane ever built, which weighed 180 tons in full and had a wingspan of 97 meters. But the Spruce Goose only flew a short distance on its maiden flight in 1947 and never lifted again.
But more to the point, the AG 600 can carry 50 passengers whether people being rescued, or troops on the move to a South China Sea island. Certainly the AG600 adds significant strategic capability to the Chinese claims in the South China Sea.
Nov. 2, 1947: The Hughes Aircraft H-4 Hercules "Spruce Goose" during short flight in the Long Beach-Los Angeles Harbor. This photo was published in the Nov. 3, 1947 LA Times.

Nov. 2, 1947: The Hughes Aircraft H-4 Hercules “Spruce Goose” during short flight in the Long Beach-Los Angeles Harbor. This photo was published in the Nov. 3, 1947 LA Times.


The Paris Agreement sanctions a dash for coal

February 25, 2016

Now that the Paris Climate Agreement is out of the way (having actually achieved nothing while seeming to have solved everything), sensible countries that wish to implement their plans to utilise coal can do so without being castigated for it (since Paris has now solved everything). The non-sensible and sanctimonious countries – and Sweden leads all the rest – can refrain from using coal and other fossil fuels to their own self-inflicted disadvantage.

The real winners from the Paris Agreement are, of course, India and China. By using carbon emissions per unit of GDP as the measure, India has ensured that it can treble its coal consumption by 2030 (while GDP increases by a factor of 4) and still show a 30% decrease in emissions/GDP. Similarly China can double its coal consumption by 2030 while GDP increases by a factor of 2.65 and still show a 20% reduction in carbon emissions (based on my calculation from the Indian and Chinese INDC submissions for the Paris conference).

The 2012 global coal consumption (IEA report) was about 8.186 billion short tons of which China consumed 3.887 billion short tons and India consumed 0.745 billion short tons. By 2030, India alone would consume 2.235 billion short tons and still meet their Paris obligations. Similarly China would consume about 7.774 billion short tons and still meet their Paris promises. Effectively the Paris Climate Agreement sanctions that coal consumption in India and China alone will be about 10 billion short tons and exceed today’s global consumption. The global coal consumption in 2030 will then be above 14 billion short tons which is about 70% higher than the 2012 global consumption.

And now Reuters informs us that

A decision by Japan’s environment ministry to abandon its opposition to building new coal-fired power stations casts doubt on the industry’s ability to meet targets to cut greenhouse gas emissions, experts and environmental activists said …..

As Japan gets ready to open up its power retail market in April, companies are rushing to build 43 coal-fired plants or 20.5 gigawatt of capacity in coming years, about a 50 percent increase. ……. Coal is attractive because it is the cheapest fossil fuel source and prices have slumped in recent years. Japan has turned to the energy source in record amounts since the Fukushima disaster in 2011 led to the shutdown of reactors.

A group of 36 power companies, which supply 99 percent of the country’s electricity, have also formed a new body to take measures to trim emissions and meet the industry’s voluntary goal to cut emissions by 35 percent in 2030, compared with 2013.

The Paris Agreement has ensured that all those who wish to use coal can continue to do so.


Chinese stocks crash another 7% while World Bank warns of further possible shocks

January 7, 2016

European stock markets can be expected to decline another 2-3% today. The Chinese stock markets hit the automatic circuit breakers soon after they opened today when they dropped another 7%. The devaluation of the Chinese Yuan continues apace with a 0.5% drop, which is the largest single day drop since August when it was devalued 2%. The Shanghai composite index is now down at 3115, down from the high of 5000 it reached in June 2015. In the meantime Brent oil fell below $35 which is the lowest since 2004.

Back in August last year I expected market “bottom” to be when the SCI was less than 3200 and oil was around $30 per barrel.

So I’m looking for the SCI at or less than 3200 and oil prices of about $30/barrel to start getting bullish again. That will not be before November/December this year.

And until then its probably best to keep cash under the mattress.

Hopefully the bottom is not too far away.

sci jan 2016 graphic by bloomberg

sci jan 2016 graphic by bloomberg

In the meantime the World Bank has released its Global Economic Prospects for 2016. WB Global Economic Prospects January 2016

While the WB expects global growth to increase slightly from 2.4% in 2015 to 2.9%, it sees some major risks ahead. The nightmare scenario is if the economies of the BRICS countries decline simultaneously and that could spillover and cause a prolonged downturn globally.

The simultaneous slowing of four of the largest emerging markets—Brazil, Russia, China, and South Africa—poses the risk of spillover effects for the rest of the world economy. Global ripples from China’s slowdown are expected to be greatest but weak growth in Russia sets back activity in other countries in the region. Disappointing growth again in the largest emerging markets, if combined with new financial stress, could sharply reduce global growth in 2016. …….

…….. Specifically, a 1 percentage point decline in growth in BRICS is associated with a reduction in growth over the following two years by 0.8 percentage points in other emerging markets, 1.5 percentage points in frontier markets, and 0.4 percentage points in the global economy. Spillovers could be considerably larger if the growth slowdown in BRICS were combined with financial market turbulence.

The World Bank ends by advising developing economies to develop resilience – which may be easier said than done

In the current environment, developing countries need to brace for possible shocks by building resilience to risks to growth. Where they are able to boost government spending or lower interest rates, they can provide support to economic activity. They can further encourage investor confidence with reforms to governance, labor market functioning, and business environments. Measures to absorb young workers or to increase workforce participation will relieve demographic pressures in many countries.

Hopefully the stimulus that low oil price provides will be sufficient to prevent the nightmare scenario.

China has been burning more coal than reported – and any Paris “agreement” will have no significance

November 4, 2015

The NYT reports that in the last 10 years China has admitted it has been burning about 17% more coal than has been reported. The extra one billion tons burned every year is equivalent to what is consumed by Germany. But the global temperature (the satellite measurement based calculated temperature, not the calculated land based measurements which are fudged every year to keep cooling the past) has been flat for over 18 years. Antarctica is gaining ice mass. Ice cover in the Arctic is at the highest level for the last 10 years. Sea levels are not rising any faster than they have been for the last 500 years. Apart from shifting money between countries it is difficult to see what Paris is all about.

Irrespective of what Paris may “agree”, it will be non-binding and will allow India to treble its coal consumption and China to double its coal burn. Both will however “reduce” their carbon emission intensity per unit of GDP (how not?). Energy growth exceeds GDP growth at low levels of development (and fuels GDP growth) but then flattens out as the GDP increases. Thus reducing carbon emission intensity per unit of GDP is easy (and virtually impossible to avoid) when GDP is growing and development has reached the point where growth in electricity (or energy) consumption is lower than GDP growth.

energy to gdp growth as function of gdp

energy to gdp growth as function of gdp

The trebling and doubling respectively of India and China’s coal consumption over the next 20 or so years is an inevitability. Carbon emissions will follow no matter how they are packaged to seem to be “a reduction of emissions per unit of gdp”.

What European countries do to cut their fossil fuel use – and increase their electricity costs – is pointless and with no measurable objectives. European actions are no longer of any significance in terms of global emissions. Moreover nothing “agreed to” in Paris will give any measurable impact on any climate parameter over the next 50 years. The only measurable results of any Paris deal are the inputs – money flows between countries and the changes in fuel use. None of the desired “climate changes” are measurable. Truly policies without any measurable objectives.

china - revised coal consumption - graphic NYT

china – revised coal consumption – graphic NYT


China, the world’s leading emitter of greenhouse gases from coal, has been burning up to 17 percent more coal a year than the government previously disclosed, according to newly released data. The finding could complicate the already difficult efforts to limit global warming.

Even for a country of China’s size, the scale of the correction is immense. The sharp upward revision in official figures means that China has released much more carbon dioxide — almost a billion more tons a year according to initial calculations — than previously estimated.

The increase alone is greater than the whole German economy emits annually from fossil fuels.

India and China have already won and the Paris climate conference has become irrelevant

October 20, 2015
Paris conference

Paris conference

India and China have successfully managed to get the UN to focus on the intensity of emissions per unit of GDP and thus can make promises (not legally binding) about future emissions tied to GDP such that they will not be limited in their use of coal in any significant way.

The hype about the UN’s December climate meeting in Paris is gradually growing. Media, politically correct politicians and the global warming religion’s orthodoxy are winding up their rhetoric. Ostensibly the goal is to demonise carbon and to get nations to commit to reducing fossil fuel use such that the global temperature rise “will not exceed 2ºC”. This target of “allowable” temperature rise is not “2ºC caused by man” but just “2ºC”. Nobody actually knows what the rise by “natural causes” might be and what is caused by man. “Global temperature” itself is an artefact, a calculated quantity and calculated by those with a vested interest in showing that it is increasing. It seems that the calculation method is conveniently variable and is adjusted every year to show that the current year has demonstrated the highest ever temperature. Nevertheless the 5,000 participants and 190+ countries have effectively set themselves up to discuss commitments to stop climate change itself. The arrogance is astounding and worthy of King Cnut.

What effect man has actually had on climate is unknown. For almost 20 years now, man-made carbon dioxide emissions have been growing explosively but “global temperature” has paused. Those countries which have increased their own costs of electricity by reducing fossil fuel use (mainly in Europe) have effectively done it all quite uselessly and unnecessarily. Other countries (China and India in the main) have increased their use of fossil fuels such that global emissions of carbon dioxide have continued to grow. And yet there has been no change in “global temperature” except by arithmetical tricks. The last 3 decades of reducing fossil fuel use in Europe have been unnecessary. Three decades of subsidising renewable energy have still not made them commercial in their own right.

Climate policies are all policies where the objectives are not measurable. Policies are being proposed where the effect of the policies on climate itself cannot be measured. All that can be measured are the actions themselves which is both trivial and meaningless. For example countries can measure amounts of money spent but have no clue as to what the resultant effect on climate may be. Emissions reductions can be measured, but not the actual climate effects such reductions may have caused or not caused. For many delegates the purpose is not climate but the redistribution of wealth among nations where climate policy is the vehicle.

Ask a politician what his countries climate policies will achieve and the answer is that it will “contribute to the world’s efforts to stop climate change”. But by how much and how success can be measured are unknowns. It has become a matter of solidarity among nations not of policies with objectives. Not a single country (nor any politician nor any so-called climate scientist) has any inkling about what its climate policies will achieve for climate or even if it will achieve anything at all.

Some of the more savvy politicians and countries have figured out ways to seem to support political correctness while ensuring that their continued – and increasing – use of fossil fuels is not constrained in practice. For India and China the continued use of fossil fuels is critical and necessary for their growth. For the next 20  – 30 years, their carbon dioxide emissions are going to increase regardless of what the Paris meeting decides. India has proposed policies which seem – at first sight – to be drastic reductions in the “intensity of carbon dioxide emissions per unit of GDP” but defined in terms of growth such that coal consumption will have trebled in the next 25 years from 2005. India has now said it will cut emissions intensity by up to 25% of 2005 levels by 2020. China has also said it will reduce the intensity of carbon dioxide emissions per unit of GDP in 2020 by 40 to 45 percent compared with the level of 2005.

India’s GDP has grown from $0.8 trillion in 2005 to be about $2.1 trillion in 2014. China’s GDP has already grown from $2.3 trillion in 2005 to $10.3 trillion in 2014. These “promises” based on GDP are not even going to be legally binding  and there is certainly no cap to the GDP which can be aimed for or achieved. The GDP targets for India and China inherently require a mix of fuels to be used for electricity generation; coal, gas, nuclear and hydro primarily. Solar and wind power may have a large installed capacity and may contribute something to the growth but are not necessary or critical. The Indian and Chinese plans for using more gas and nuclear in their mix automatically brings down the carbon intensity per GDP from the levels of 2005 when both countries were heavily dependent on coal. Their coal plans can therefore proceed unimpeded while still meeting their “promises”. Both countries are relying on GDP growth to effectively reduce their “intensities of carbon emission” without having to reduce the rate at which they increase planned fossil fuel use or carbon dioxide emissions. Both India and China have reached the stage of development where electricity consumption growth is now lower than GDP growth. Both are at low levels of energy utilisation efficiency such that significant demand side improvements can be made. With around 7% growth in India and even with China reducing to, say, 6% growth, the reductions of intensity of carbon dioxide emissions per unit of GDP are impossible to prevent.

Any agreement in Paris will mean India trebling and China doubling its coal burn by 2030. And with “official” sanction to do so. So what “success” in Paris means is that global, man-made, carbon dioxide emissions are going to double (at least). And it also means that any carbon dioxide emission reductions promised by other countries are of no significance whatsoever. It is a very good thing that man-made, carbon dioxide emissions have no significant impact on global temperature.

And the Paris conference is both meaningless and irrelevant.

European nuclear moratoria are ineffective and counter-productive as China plans 110 nuclear plants by 2030

October 18, 2015

Update! Numbers have been corrected. By 2030 China plans 110 nuclear plants in operation which is another 60 reactors in addition to the 50 currently in operation or under construction. (I had earlier assumed that the plan was for 110 new reactors).

The European nuclear industry is almost dead as a consequence of,

  1. the ban on nuclear power in countries which have succumbed to environmental political correctness (e.g. Sweden, Germany…)
  2. the ridiculously long and costly permitting processes (environment and safety) in countries where nuclear power has not been banned (UK, Finland…)

As a contribution to the global use (or non-use) of nuclear power, the European reluctance to use nuclear power is entirely meaningless. For the objectives of killing the European nuclear industry and raising costs for electrical power in Europe, the anti-nuclear lobby has been entirely successful.

China currently has 23 nuclear plants in operation and 27 under construction which will be in operation by 2020. By 2020 the Chinese nuclear generating capacity will have almost tripled from the 21GW, 2014 level to be about 58GW in 2020. They have just announced their next five-year plan and some long-term strategies. Another $78 billion has been earmarked to reach 110 nuclear plants in operation by 2030. These plants will be built using indigenous Chinese technology. This technology is now available for export. It is being actively considered for projects in Pakistan and Argentina and now China is even a possible investor in the UK. Each Chinese nuclear plant has a capacity of about 1.1GW (1,100MW). At $78 billion for a further 60 plants, the investment cost planned is about $1200/kW. This is incredibly low, not just for nuclear plant, but for any type of power generating plant. Even assuming a volume effect, it can be expected that Chinese nuclear power plants could be exported at about $1,200-1500/kW.

The Hindu:

China plans to build 110 nuclear power plants by 2030 with an investment of over $78 billion overtaking the U.S. which has 100 such plants amid criticism that Beijing is yet to implement enough measures to develop safety controls in existing projects.

China will build six to eight nuclear power plants annually for the next five years and operate 110 plants by 2030 to meet the urgent need for clean energy, Beijing-based China Times quoted plan analysts as saying. China will invest 500 billion yuan ($78.8 billion) on domestically developed nuclear power plants, the report said. According to the China Times, the country plans to increase its electricity generation capacity to 58 gigawatts by 2020, three times the 2014 level. 

China currently has 23 nuclear power generating units in operation and 27 under construction, about one-third of the world’s unfinished nuclear units.

The construction resumed after the Chinese government which put the brakes on nuclear power plant approvals after the Fukushima nuclear accident in Japan in 2011 permitted their construction after a safety review.

nuclear sites in china (graphic

nuclear sites in china (graphic

In Europe the Olkiluoto #3 nuclear plant of 1,600MW in Finland, was first expected to cost about $2,000/kW, but with all the delays and cost overruns it is going to end up costing about $5,300/kW. Even if the unnecessary approvals and cost overruns incurred just to satisfy the environmental lobbies were not there, the investment cost for new nuclear capacity in Europe would still be about $2,600-3000/kW (compare that with about $1,100/kW for gas fired plant, about $2,500/kW for a coal or onshore wind plant and about $6,800/kW for offshore wind power).

As a comparison, India currently has 21 nuclear rectors in operation with a capacity just under 6GW. A further 6 reactors giving another 4 GW are under construction. The Indian plan is to reach about 63GW of nuclear capacity by 2032 which, of course, will not happen. My experience of Indian power planning is that about 60% of the plan will be implemented (though the track record is improving). So it is quite probable that India will construct around another 40 nuclear reactors (@800MW/reactor on average) by 2032. (In that period Indian coal consumption would also have trebled).

At the Chinese cost of exporting nuclear plant for around $1,200-1,500/kW, it is only to be expected that the electrification of Africa and nuclear expansion in S. Asia will be satisfied to a large extent by nuclear power.  A big chunk of that would be with Chinese technology. I have no doubt that European nuclear plants operate to much higher safety standards than the current Chinese reactors, but the European nuclear industry is now dead and it is Chinese nuclear technology which will be affordable and will prevail.

Considering the goals it was set out to achieve, the European anti-nuclear stance has been totally ineffective (except locally in Europe) and grossly counter-productive:

  1. it has no long-term impact on global use of nuclear energy,
  2. it has effectively killed the European nuclear power industry,
  3. it has effectively reduced the safety levels of all those nuclear plants that will be built over the next two decades, and
  4. it has increased the cost of electric power in Europe.

It is worth remembering that while the Great 2011 Earthquake and Tsunami killed some 18,000 people in Japan, the Fukushima accident it caused has killed no-one directly due to radiation. Now, less than 30 years after the major disaster at Chernobyl, the area is very far from being some nuclear waste-land, and plant and wild-life are thriving as never before in the region.

Chinese markets dive below ground “zero”

August 25, 2015

I thought that the “bottom” for the Shanghai Composite Index was at about 3100. Yesterday the SCI dropped below 3000.

SCI Aug 25th 2015 Yahoo

SCI Aug 25th 2015 Yahoo

I think Shanghai at 2950 is undervalued now, but I am no longer sanguine about when it might hit a floor and begin to bounce back. The speed of the decline in the last week indicates that even 2500 is not impossible. The risk is that it will drag the global markets down as well.

Perhaps the turnaround can only come when oil price has dropped to $30/barrel?

865,000 evacuated as Typhoon Chan-hom heads for landfall today

July 11, 2015

Close to a million people have been evacuated and almost 30,000 fishing boats have been recalled to port as Typhoon Chan-hom approaches Sheijiang on the East China coast.

CRIMore than 865,000 people in the eastern Chinese province of Zhejiang have been evacuated as super Typhoon Chan-Hom, the second typhoon to hit China in two days, approaches.

A total of 28,764 ships had been recalled to port as of 10 p.m., Friday, and several cities were already reporting heavy rain and strong gales, the provincial flood, typhoon and drought headquarters said.

The National Meteorological Center (NMC) issued a red alert, the highest level, on Friday morning for the super typhoon.

At 0900 local time on Saturday, the typhoon was around 115 kilometres southeast of Zhejiang province over the East China Sea and forecast to make landfall in Zhejiang on Saturday in the afternoon. It could be the most powerful typhoon to hit the area since 1949.

Image from Pacific Disaster Center:

Typhoon Chan-hom July 10th 2015

Typhoon Chan-hom July 10th 2015

Chinese crash gives new investing opportunity

July 9, 2015

The 2015 Chinese stock market crash has different drivers but resembles the 2007/2008 crash in investor behaviour.

Many domestic Chinese investors made a great deal of money with the recovery in late 2008/ early 2009. My guesstimate is that any real recovery from the current crash cannot come until the 6 month freeze just introduced on large stockholders selling shares is withdrawn. But since investing in the Chinese market is now possible through a variety of funds, there is an opportunity coming. My estimate is that the bottom is when the Shanghai Composite Index is driven down to about 3,100 at which point the market will be grossly undervalued. The opportunity will come in the subsequent “bull” market when stocks will be driven up into “overvalued” territory again.

I am a strong believer in “track record” and that past behavioural patterns repeat or, at least, change very slowly.

My investments are far too small to be of any significance in the big picture. My strategies are therefore all based on detecting and riding the waves of behaviour exhibited by others. And so I will be looking to making some investments in about 4 – 6 months with a target of 30-40% growth over the following 6 months.

China investing opportunity

China investing opportunity

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