OnlineInvestorsNews
Volume M 9-14, November 18, 2004
Fahrenheit
Gold & Oil:
China & the Final War for Resources
Bill Ridley
www.jameswinston.com
November 19, 2004
In their 1999
seminar treatise entitled, Unrestricted War: China's Master
Plan to Destroy America, Colonels Qiao Liang and Wang Xiangsui
state that in order for China to become a dominant global power
over the United States, "The Final War over Resources,"
must be successfully concluded.
Though this
could be easily blown off as People's Liberation Army hyperbole,
a closer look at the facts shows us that the United States is
in a very vulnerable position on a number of fronts with China.
And so with it, is the U.S. dollar.
As long time
readers of the OI news know, the resurgence of gold and the fall
of the dollar have a multiple factors working together. Going
forward into 2005, China's "final war for resources"
will be a key factor in the further depreciation of the greenback.
The U.S. government
has been keeping a lid on the brewing problems with China because
of the delicate situation which has the Chinese central bank
holding billions in U.S. dollars and treasury bonds which Washington
fears they might sell.
China has been
instrumental in helping the U.S. government bank roll its deficit
and consequently, this reliance on the Chinese to support the
U.S. debt has the government up against a rock and a hard place.
This problem is made worse each day by the huge trade imbalance
favoring the Chinese economy.
The U.S. dollar
reserves of China's central bank soared 271% to $449 billion
from 2000 to April of 2004. And while they have been filling
their coffers with the greenback their balance of trade with
the U.S. is also building. The trade deficit with China last
year was a record $124.1 billion and this year, it's increased
a further 28%.
Meanwhile,
the United States is financing its ever ballooning budget deficit,
which is projected officially to be $521 billion in 2004.
Zhu Min, general
manager and advisor to the President for the Bank of China was
quoted in the China Daily earlier this year saying that:
"The United States is benefiting from China using its trade
surplus to buy U.S. Treasury paper as a reserve currency, along
with other Asian nations. But in the long run, this is not sustainable....
China will focus more and more on domestic demand, which is growing
fast. Then we won't be able to finance the U.S. deficit."
And now that's
what's happening. China is reportedly selling off their hoard
of U.S. dollars to help build their much needed infrastructure
and spend heavily to secure global resources.
A United Nations
report points out that China's recent prosperity has raised the
living standard of 160 million Chinese who once existed in poverty.
Behind them are another 800 million who are awaiting their turn
to live a life once thought unattainable. The demand of goods
and services from this group means an even greater global demand
for resources.
The desire
of China to tie up resources has been evidenced by China Minmetals
Corp. who had been in exclusive talks with Noranda, one of Canada's
largest mining companies, in an attempt to buyout the company
for an estimated $7 billion.
There was tremendous
opposition to this plan however. Canadians argued that the Chinese
government's strategic interests in securing mineral supplies,
and its management methods, could be contrary to the interest
of Noranda, its workers, and the communities where it operates
mines and processing facilities.
Some opponents
to the deal also cited U.S. Congressional hearings that alleged
that Minmetals has profited from forced labor from Chinese prisons.
But this is
only one bid of many which has China trying to lock up global
resources.
Very troubling
for the United States is the fact that China has negotiated a
new oil supply deal with Iran which would see Iran receiving
both arms and cash. China has long standing alliances with Iran
and is searching for new energy reserves to drive its booming
economy. This new deal with China is not only an agreement to
buy oil and gas from Iran but also to develop Iran's Yadavaran
oil field. After this field is developed, Iran will export 150,000
barrels of crude per day to China. This agreement has been valued
at $70 billion.
China's demand
for oil outpaced its supply capabilities in 1993. China is now
the world's third largest importer of crude after the U.S. and
Japan and their demand is growing. From January to October, China
imported 99.6m tonnes of crude oil, exceeding the 91m tonnes
imported in the whole of 2003, said reports quoting the General
Administration of Customs. Imports of crude oil in 2004 are expected
to reach 120m tonnes, the second largest in the world after the
US.
Demand for
electricity is also on the rise in China. Despite record production
of coal and a 15% rise in power generation over the first 10
months of the year, dozens of Chinese cities suffered brown-outs
during this past summer. And this winter it looks like many will
be left without heat for extended periods. The China Daily reports
that Beijing has only 50% of the coal it needs this winter, while
Jilin has stores of 40%, half the level of this time last year.
So the multi
billion dollar question is what happens when China starts selling
U.S. dollars to help expand their infrastructure and secure their
resources?
Well you're
already seeing it. Interest rates go up, the dollar goes down,
and gold takes flight upwards. Not to mention upward pressure
on oil, gas, coal, copper and other key commodities.
The implications
of this fact are staggering. And demand for commodities will
be overwhelming. Insightful investors who can see this trend
and position themselves now in growth oriented equities holding
gold, oil, copper and other key commodities will be sitting pretty
if a few years time and will have weathered the U.S. dollar collapse
better then most.
This is the
hugest threat to the U.S. economy right now yet it's hardly ever
mentioned by the mainstream media.
Given the strong
economic growth of China and the uncertain purse strings it holds
on U.S. dollars and treasury bonds, I can't help but wonder how
this might tie in with their aggressive militaristic actions
lately.
Last week a
Chinese nuclear powered submarine cruised into Japanese territorial
waters in an apparent test of Japan's will to enforce its own
sovereignty. At stake here are under water natural gas riches
in the East China Sea very close to the border of Japan's economic
zone. The government of Japan is worried that China may try and
tap into gas pools within their jurisdiction.
One fact which
doesn't sit well with the Bush Administration is that U.S. intelligence
reports claim China's military provided training to both the
Taliban and al Qaeda. Though U.S. officials are at a loss to
explain why the Chinese provided this training some analysts
believe it was an attempt to gain influence over these terrorist
groups.
Given China's
need for commodities, its human rights offenses, and their hawkish
military actions one must wonder if the Chinese government really
has a detrimental agenda for America.
The writings of People's Liberation Army Colonels Qiao Liang
and Wang Xiangsui, state that the aggressor nation "must
adjust its own financial strategy, use currency revaluation or
devaluation as primary weapons, and combine means such as getting
the upper hand in public opinion and changing the rules sufficiently
to make financial turbulence and economic crisis appear in the
targeted country or area, weakening its overall power, including
its military strength. Whether it be the intrusions of hackers,
a major explosion at the World Trade Center, or a bombing attack
by bin Laden, all of these greatly exceed the frequency bandwidths
understood by the American military... "
Conclusion
U.S. dollars
and U.S. bonds are under pressure. The budget and trade deficits
are hitting new highs on a regular basis. The U.S. economy is
in an unbelievable no-win situation where the Fed is damned if
it raises interest rates and damned if they don't. This situation
is unsustainable and it's unrealistic to believe their will be
a painless solution.
It's a given
that China needs more of every commodity. To what means they
will take to get them remains to be seen.
Regardless
of the unknown factors, the facts we are aware of support the
premise that in order to protect yourself, diversification into
gold, oil and other key commodities makes good sense not only
to profit but help keep your wealth intact in the face of a depreciating
dollar.
Bill Ridley
Contact
Website: www.jameswinston.com/
321gold Inc
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