Reply #33: EFFECTS OF CHINESE ACQUISITIONS (Willie) [View All]

http://www.gold-eagle.com/editorials_05/willie011805.html

This summer marked an historical development in the commodity arena, which can only be characterized as "guerrilla trade war." A pre-emptive attack on North American properties has begun. China has tendered an offer to purchase Noranda Copper. They submitted an offer to purchase undeveloped land in the vast energy fields of Alberta. They have approached Silver Standard for equity ownership. They have also approached Australia and Brazil to secure supplies of minerals. Their tactics have become more clever, with humanitarian goals as well as strong-arm methods in the bidding process. This is a huge sequence of events which strongly indicates intention by China to secure their supply chain. In early January, China tendered their boldest offer of all. They have submitted a bid to acquire the US energy firm Unocal, their first offer of a US company. This might actually awaken the US Sleeping Dog. Energy supply assurance strikes at the heart of national security. Danger is rising that when it comes to not only energy supplies, but also industrial metals and more, the US Economy might find itself on the outside looking in. Risks are rising that the USA might someday find itself locked out.

China has begun its bold attempt to execute an end run around the commodity market, to secure their future supply, and in effect to gradually lock out American customers. This is a brilliant pre-emptive attack, which US leaders do not recognize yet. To the untrained eye, this appears to be a positive development. It is, but mainly to investors and producers of gold, silver, copper, oil, gas, and other commodities. To all others, it is an utter curse yet to be acknowledged, and a precursor to trade war. The captured booty will be mineral and energy properties, which will elevate the tone of the commodity bull market and eventually trigger a bidding war on mining and energy stocks in the coming years. Political fallout is certain. Tensions will heighten.

This spring the US Economy suffered interruption to large Florida construction projects, due to unavailable cement supply. Such disruption will become commonplace across North America. Due to its size and authoritarian government, China will be better able to manage any new disruption as they secure future supply, whereas the USA is preoccupied by its inflationary machinery, financial speculation, housing bubble building, profligate consumption, general pervasive omnipresent waste, and war initiatives. China can also handle economic pullback and internal chaos far more capably than the USA. They can both subdue social disorder more easily, and absorb bank portfolio losses with less interruption. A recession in either nation would affect the world, since they are the factory workshop and the US is the debt-driven consumer behemoth. If more copper is gobbled up by Chinese interests across North and South America, a day will come when shortages rage acutely inside the US Economy while China hums along. China also has grown to become a large silver refiner. As they secure silver in raw commodity form, they will eventually release less and less refined silver to markets. They will keep it in China for their own usage in electronics and other applications. Karl Marx warned that a capitalist will sell you the rope to hang another capitalist. In this case, the USA will supply the shipping vessels to send commodity supply to China, as our nation suffers from lack of supply and we are cornered out. Some people such as former Treasury Secretary Robert Rubin (under President Clinton), US House Representative Ron Paul, and PIMCO bond king Bill Gross, have begun to sense our vulnerability, but to date, we have not executed on a single defensive action in response. US leaders are clueless economically, and asleep at the wheel when it comes to commodity supply.

The other purpose for Chinese acquisitions is to purchase expertise, intellectual capital if you will. The secondary benefit is worth far more than can be estimated. So far in the technology arena, the US has given away its principal comparative advantage as it has put into place enormous foreign direct investment within China. US corporations do this with open eyes willingly, as they seek the low-cost advantages. When Noranda Copper is purchased, active professionals come with the deal. China needs expertise to carry out its plans. They have educated workers, but they will need experience. Each acquisition offers additions to their expanding professional expert working class. Asia is educating over four times as many scientists and engineers as the United States and Canada, but they are way short in workers with strong experience and training in business.

THE NEW BATTLEGROUND OF SUPPLY CHAINS

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