[fossil_fuel]

**Disclaimer: I currently am long on oil through holding an energy ETF**

the Chinese economic bubble has to burst sometime. With their huge rate of growth and the regulatory issues with their banking/lending system, it seems likely that there could be a 30's style depression in that country pretty soon, causing a huge drop in the demand for oil. Any thoughts on this scenario?

[jaws]

China's economy is not a bubble. The rapid growth in China is the result of massive investments in capital made possible by pro-market reforms in the 80's and a high savings rate from the Chinese people. The exact same thing happened to the Japanese, Korean, Hong Kong and Taiwanenese economies on their way up.

The real bubble is in America and other countries facing a real estate bubble. Should that bubble burst (and signs are pointing to it) then demand for Chinese exports will fall and China's economic growth will slow, but things elsewhere will be much worse. The bursting of the American bubble is likely to put America through the same deflationary depression that hit Japan through the 90's, but nothing as bad as the 1930's since what made that depression so bad was pro-cyclical government intervention.

[seldom_seen]

Strategic Forecasting is pretty much on the same page as you are:

Economic woes in China will deflate oil prices
$this->bbcode_second_pass_quote('', '"')We see China's economic model -- which is a variation of the Asian model that failed in 1989 in Japan, and again in 1997 across the Asian Rim -- coming to a head in the latter half of this year."

The root of the problem, Zeihan says, is that in China and other countries with state-controlled companies, money is lent to these monopolies regardless of their profitability or quality of asset management.

"The only way they survive is with an ongoing supply of cheap capital in large amounts," he says.

[MicroHydro]

I agree that China is not a bubble. Their situation is more akin to 1950s USA. They are building a highway system, dams, wind turbines, etc. They are a creditor and exporter. When US demand collapses, they have an internal market of 1.3 billion people eager to buy the goods that they will no longer be sending to WalMart. They also are very inefficient with energy use compared even to India. They could experience continued economic growth even with a flat energy supply by improving efficiency.

[goldmund52]

I think China is going to start filling their strategic petroluem reserve in 2006. I wonder how that would affect their demand if the Stratfor scenario unfolds.

[BAM]

Buy a put option.

[Russian_Cowboy]

$this->bbcode_second_pass_quote('MicroHydro', 'I') agree that China is not a bubble. Their situation is more akin to 1950s USA. They are building a highway system, dams, wind turbines, etc. They are a creditor and exporter.

[jimmydean]

I see no evidence of a China collapse. Cheapest cost/unit manufacturing in the world right now and lots of western companies see the dollar signs on the bottom line for selling cheap goods for similar prices as western made goods. Western money is fueling China's growth and putting people out of work in the west.

Only thing that could hurt them would be further trade sanctions against them or direct court battles in some areas for dumping goods. Most recent I believe was the UK (or EU) sanction against textile goods as it's putting European textiles into bankrupcy. One other saction was on television sets in the U.S..

[khebab]

A few observations:
1- Most of the western manufacturian sector has been outsourced in China so the ernergy need that comes with it;
2- Chinese usually don't care much about the environment, pollution or fuel efficiency
3- Chinese lifstyle especially is rapidly evolving toward a more westernized way of life:


What is ironic is that american automakers have tried for decades to penetrate the huge Chinese market. They have obviously succeed. Now this success is threatening the very basis of what makes personal car economically viable: cheap oil.
$this->bbcode_second_pass_quote('', 'I')n 2003, China imported cars and related products worth US$14.45 billion, up 84 percent year on year, customs figures showed. China has become the fourth auto manufacturing country in the world after the United States, Japan and Germany.

[Russian_Cowboy]

$this->bbcode_second_pass_quote('khebab', 'A') few observations:
1- Most of the western manufacturian sector has been outsourced in China so the ernergy need that comes with it.

[threadbear]

$this->bbcode_second_pass_quote('seldom_seen', '[')url=http://www.stratfor.com]Strategic Forecasting[/url] is pretty much on the same page as you are:

Economic woes in China will deflate oil prices
$this->bbcode_second_pass_quote('', '"')We see China's economic model -- which is a variation of the Asian model that failed in 1989 in Japan, and again in 1997 across the Asian Rim -- coming to a head in the latter half of this year."

The root of the problem, Zeihan says, is that in China and other countries with state-controlled companies, money is lent to these monopolies regardless of their profitability or quality of asset management.

"The only way they survive is with an ongoing supply of cheap capital in large amounts," he says.