The disconnect between the brewing troubles in China and the seemingly unshakable perception of Chinese strength persists even though the U.S. media accurately cover China, in particular the country’s inner fragilities. One explanation for this disconnect is that elites and ordinary Americans remain poorly informed about China and the nature of its economic challenges in the coming decades. The current economic slowdown in Beijing is neither cyclical nor the result of weak external demand for Chinese goods. China’s economic ills are far more deeply rooted: an overbearing state squandering capital and squeezing out the private sector, systemic inefficiency and lack of innovation, a rapacious ruling elite interested solely in self-enrichment and the perpetuation of its privileges, a woefully underdeveloped financial sector, and mounting ecological and demographic pressures. Yet even for those who follow China, the prevailing wisdom is that though China has entered a rough patch, its fundamentals remain strong.
Posted by Houses and Holes in Commodities on August 29, 2012
For these reasons I am very pessimistic about hard commodity prices and expect them to drop substantially further in the next two to three years.
1. Production capacity for hard commodities is rising much too quickly, in a belated response to the unexpected surge in demand just under a decade ago.
2. Expected economic growth rates in the country that has been biggest source of new demand – virtually the only source – have fallen sharply and commodity prices have fallen with them. Historical precedents and the arithmetic of rebalancing suggest, however, that the current consensus for medium-term Chinese growth is still too optimistic. Expected growth rates will almost certainly fall further in the next two years.
3. Beijing has finally become serious about rebalancing China’s economy, and rebalancing means shifting Chinese growth away from being disproportionately commodity intensive. Instead of representing 30-60% of global demand for most hard commodities, Chinese demand will shift to a more “normal” level. Remember that even a very limited shift – from 50% of global demand, for example, to a still high 40% of global demand – represents a sharp drop in global demand.
August 27, 2012 4:15 pm by Peter Marsh
If the balance of power in manufacturing were to tilt back towards the high-cost nations, it would come after a relatively short period in which these parts of the world have been losing ground. In 2000, the rich nations were responsible for 73 per cent of global manufacturing output, with emerging economies accounting for the remaining 27 per cent. Over the next five years, the figure for the western world fell to 69 per cent. By 2011, the figure had slumped still more dramatically, to just 54 per cent, according to data from IHS Global Insight. (See tables, and note on definitions at the end of this article.)
If the trends of the past few years were to continue, then in the early 2010s, the share of the emerging nations in world manufacturing output would go above 50 per cent, making it bigger than that from the west. It would be a sign that the rich world’s dominance of this activity was truly over.
|Rest of world||32.0||31.6||32.1||31.1||27.5||26.4||25.8|
|Source: private data made available by IHS Global Insight; UN statistical service; other data from charts in “The New Industrial Revolution: Consumers, Globalization and the End of Mass Production”, Peter Marsh, Yale University Press, 2012.|
By Mark P. Mills Saturday, August 25, 2012
The third grand technology shift is already starting to happen in the emerging Computational Manufacturing revolution. This is the first core shift in how we manufacture things since Henry Ford launched the economic power of “mass production.”
We have already seen some evidence of this transformation in how “automation” has been applied to manufacturing and the supply chain. But computational manufacturing is much deeper and broader. It begins with something commonly called 3D printing—or “additive” or direct-digital manufacturing. This is literally the “printing” of parts and devices directly from a computer model or image, using lasers, electron beams, or microwaves, and powdered raw materials.
3D printing is radically improving and accelerating the design process and already produces commercially viable final parts in some niche applications such as highly customized parts for aircraft or medical devices like knee joints.
A directly related aspect of the manufacturing revolution emerges from the computational design of the materials themselves. Engineers can use supercomputing power to design and build from the molecular level, optimize features and even create new materials, radically improve quality, and reduce waste. For example, there are materials like graphene, which offer as much promise as did silicon itself, and bizarre constructs of so-called meta-materials, which enable, literally, features like invisibility.
Computational manufacturing is poised to become a trillion dollar industry, unleashing as big a change in how we make things as did mass production in an earlier era, and as did the agricultural revolution in how we grew things. It is a manufacturing paradigm defined not by cheap labor, but high talent.
By Lorraine Woellert – Aug 1, 2012
American manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery.
The Institute for Supply Management’s factory index was 49.8 last month, little changed from a three-year low of 49.7 reached in June, the Tempe, Arizona-based group said today. Economists surveyed by Bloomberg News projected a reading of 50.2, according to the median estimate, just above the 50 mark that separates expansions and contractions.
Manufacturers from China to the euro area joined the U.S. in showing signs of retrenching, indicating Europe’s debt crisis and the looming U.S. government spending cuts and tax increases that constitute the so-called fiscal cliff are taking a toll on customers globally. Federal Reserve policy makers today acknowledged that the economy has slowed and foreshadowed new steps to boost the weakening expansion.