TRANSCRIPT: Food Fight! Peak Oil? And Chinese
Stock Markets Flatline:
Sinomania! Volume I Webisode 24, July 19, 2007
Food Fight! China and the US sling hash but who
cleans up in the end?
Chinese markets flat line - I'll take their pulse.
And a special look at world oil.
Like a fussy patron in a busy restaurant, the
USA continues to send Chinese food imports back
and the White House and Congress trip over each
other with competing measures to deal with America's
new "filthy food" problem.
A panel of Bush cabinet members including Secretary
of State Condoleezza Rice, Commerce Secretary
Carlos Gutierrez, and trade maid Susan Schwab,
will look hard at the food safety problem. And
at the end of this month a delegation from the
United States' Food and Drug Administration or
FDA will meet with their Chinese counterparts
in Beijing for talks and perhaps lay the groundwork
for uniformity in safety standards, something
that is lacking and needed.
But that's not enough for opportunistic politicians
in Congress such as Senator Chuck Schumer of New
York or Sherrod Brown of Ohio who want to create
an import "czar" to oversee the Chinese food invasion.
Meanwhile, Beijing responded in its usual heavy-handed
way: the party boss of the Chinese equivalent
of the FDA was speedily tried and executed and
the national government is putting in place new
regulations, outlawing whole classes of chemicals,
and promising to publish daily reports of food
safety in time for next summer's Olympic Games.
American food imports from China are growing
and are close to $3 billion US dollars in value
but China is not the number one food import problem
- India is followed by Mexico, according to the
FDA's own data. Of the top 10 rejected source
countries of tainted food, China ranks third on
a list that includes Denmark and Italy.
One result of the food fight is that China has
now joined Japan, Korea, and Taiwan, in rejecting
American meat. But the real danger is to the growth
of USA agricultural exports to China if trade
retaliation continues. China is one of the largest
buyers of American wheat, some years buying up
to 20% of all exports, and American corn and dairy
producers are counting on China for future growth.
"There are traces of oil everywhere, not always
in commercial quantities … and no man is yet able
to say what will be 'commercial quantities' and
what 'inaccessible territory' when the automobile
has finished off its mad consumption of gasoline.
That day is perhaps closer than we think…"
That gloomy forecast comes from a report on the
oil situation published in 1920 by the US Geological
Survey. The same report announced the USA had
only 20 years yield left from onshore oil deposits
and marked the first time the country began using
more oil than it produced. The following year,
1921, an oil conference was held in Washington,
DC, to plan how the United States could compete
against British Petroleum and Royal Dutch Shell
for oil production rights in the areas with known
reserves - the Middle East and Asia.
Flash forward to today and the oil reserves
picture is little changed, the oil majors still
competing for new fields, and the world wondering
- as it did back then - if "resource nationalism"
will end in wars for oil. One could argue that's
already happening once again in Mesopotamia.
Two reports out this week are fueling the "peak
oil" debate again.
First, the IEA (International Energy Agency)
released a mid term report on global oil supply
and demand to 2012. The report confirms the widely
known fact that many of the world's most important
oil reserves are in decline, particularly the
oil deposits of the North Sea, affecting the energy
positions of the UK and Norway, and mainland United
States and Mexico. Additionally, the IEA projects
no increase in production in Iraq, Iran, and Venezuela.
But with demand expected to continue increasing
around the world and in particular in the USA
and China, with OPEC meeting it only by reaching
sustained maximum production, prices must stay
high and get higher still by 2012.
The IEA sees Chinese oil product demand growing
over five percent per year and reaching 10 million
barrels per day by 2012 making China the number
two user after perennial frontrunner, the USA.
Chinese demand will come from a combination of
growth of energy intensive industries such as
steel, increased numbers of autos, air travel,
urban expansion, and up to ten big refinery plants
planned by 2012. China 's oil production will
also plateau but not decline at just under four
million barrels per day. But overall the IEA report
undermines its assessment by saying that the data
on China is full of uncertainties.
The IEA report is pessimistic and sees no real
change in the medium term. The report reluctantly
accepts that there will be no replacing Middle
East oil for the foreseeable future and that Europe
will become more dependent on Russia for supplies
in the years ahead. It also views Asia (China
and India) and the USA as direct competitors for
future energy needs.
Also this week, the USA's National Petroleum
Council released after a two-year wait its report
to the USA Energy Secretary on global oil to 2030.
The upshot, the council believes global production
can increase by around 25% but only if new supplies
can be exploited, particularly in the Middle East.
More importantly, the report recognizes the need
for energy efficiency in the USA and calls for
a doubling of fuel economy in American cars and
trucks by 2030.
The report acknowledges that use of coal for
electricity generation is here to stay and will
increase for both the USA and China with no comment
on the implications for global warming.
The Council's assessment is more optimistic and
also focuses on the need to strengthen global
and US energy security. It recommends avoiding
unnecessary confrontation with China, emphasizing
that the USA shares vital common interest with
China as an energy importer.
Stock markets in China have barely moved since
our last episode. In fact, the Shanghai Composite
Index appears to be flat-lining having not crossed
4,000 all month. Worst hit are Shanghai B shares,
down almost 1/3 since the May peak and also flat-lining
around 274 points. There was a surprise jump in
B share prices at the end of last week, speculation
is that it was bargain hunting. After all the
long term trend remains good for Chinese shares.