I will start the proceedings by making a bold claim - Asia powered by China, will provide economic leadership over the coming decades.
Let us face it; America's days as the undisputed global leader are now numbered. Unfortunately for the US, history has never been kind to empires. They rise from the ashes, flourish and eventually decay. The past is dotted with glorious states, which ultimately faced the inevitable - the eventual decline! The 16 th century belonged to the Spanish, the 19 th century was dominated by the British and the 20 th century saw the growth of America. So, who will take charge of the 21 st century?
I am of the opinion that China will dominate our planet in the future. You may think I am crazy. But, if someone had told you in 1900 that the United States would replace Britain as the world leader in the 20 th century, you would have pronounced him crazy too! So why am I so sure that the dragon will rule?
Remember, the People's Republic of China is a massive market with 1.3 billion people. When the Chinese leaders unleashed capitalism 20 years ago, they changed our world forever. The Chinese economy has been gradually opening its doors and the effects are being felt today in several sectors. The most profound impact has been felt in the commodities arena. China is in the early stages of its industrialisation and per-capita consumption is still depressed. Yet, China has already replaced the US as the largest consumer nation in the world! China is now the largest consumer of copper, zinc, tin, rubber, raw wool, cotton, coal and major oil seeds. Furthermore, it is already the second largest consumer of oil (despite a ridiculously low per-capita consumption of 1.7 barrels when compared to 25 barrels in the US!), aluminium, nickel and lead.
The point I am making is that China's hunger for raw materials is going to increase in the future. As more and more jobs are transferred to Asia, the standard of living will rise. Wealthier people consume more things - period. Multiply any small increases in consumption by the 1.3 billion Chinese and you get a gigantic figure! This thought must have businesses dreaming all around the world!
China is now the 7th largest economy in the world and worth US$1.4 trillion dollars. However, adjusted for differences in purchasing power, the Chinese economy is already the 2 nd largest and over 60% of the size of the US economy.
Today, China has 46 colour televisions per 100 households, 21 telephone lines per 100 people, 22 mobile phone users per 100 people, 3 computers per 100 people and 0.1 internet hosts per 1,000 people! These figures are miniscule when compared to the "developed" nations of the world. For instance, America has 99.5 colour televisions per 100 households, 62.4 telephone lines per 100 people, 54.6 mobile phone users per 100 people, 66 computers per 100 people and 680 internet hosts per 1,000 people!
What will happen to domestic demand (and commodity prices) when the 371.6 million Chinese households start consuming more? You don't have to be a rocket-scientist to figure out that the price of raw materials will go through the roof!
Modern China boasts two major cities - Shanghai and Beijing. Over the coming years, I suspect another 15-20 major cities will spring up all over China. Already, there is an exodus from rural areas towards urban centres and these ambitious people will need housing and employment. If America can boast of several major cities ( New York, San Francisco, Los Angeles, Washington DC, Houston etc.) then why can't China build at least the same number? In my view, it is inevitable that in a few years from now, Wuhan, Tianjin and Shenzhen will one day light up the night sky as major American cities do today. I want you to consider how much steel, copper, tin, lead and energy will be used to build these cities.
In addition to this, what about China's neighbour, the second most populated nation in the world? India. It is home to 1.1 billion people and has 199.4 million households. India, with a GDP of US$600 billion comes in as the 12 th biggest economy in the world. But, adjusted for differences in purchasing power, it is already the 4 th largest economy in the world after the US, China and Japan!
Today, India has 34 colour televisions per 100 households, 4.6 telephone lines per 100 people, 2.5 mobile phone users per 100 people, 0.7 computers per 100 people and 0.3 internet hosts per 1,000 people! In summary, India's per-capita consumption is amongst the lowest in the world with the capability of becoming the largest. Demand can only go one way from here - up!
Still not convinced? Then, consider the following statistics -
India has 6 cars per thousand people and China's number comes in at a shockingly low 6.7 cars per thousand people. Compare these figures with the developed nations -
France - 491 cars
US - 481 cars
Japan - 428 cars
UK - 384 cars
Even Cambodia has 312 cars per thousand people! I don't know about you but I am convinced that India and China's car ownership won't remain so low forever. No wonder then that car manufacturers all over the world are drooling at the future! Oil demand is another story altogether. Those who believe that this is just a temporary spike in prices are living in a dream world! In the real world, the millions of new cars, which the Chinese and Indians acquire, will be powered by petrol. In the real world, unless someone finds a lot more oil and finds it quickly, petrol prices will continue to defy gravity for the years to come.
Over the past 200 years, commodities had five secular bull-markets between the following periods -
1st boom - 1823-1838 (15 years)
2nd boom - 1848-1865 (17 years)
3rd boom - 1878-1918 (40 years)
4th boom - 1929-1950 (21 years)
5th boom - 1963-1980 (17 years)
The shortest bull-market lasted 15 years whilst the biggest commodity boom went on for a monstrous 40 years! The current bull-market is only 4-5 years old. If history is any guide, the current commodity bull still has a long way to go. As I have explained above, the emerging economies of Asia will require immense quantities of "things" over the coming years. Conclusion - investors must take positions in tangibles for the long-term.
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