Bloomberg reports that, “China urged local governments to set up an early warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation.” China faces chronic energy shortages and the social and political instability those shortages foster with the population.
Do you get the feeling the communists in Beijing are barely keeping the Chinese economy together with bailing wire and duct tape? We don’t mean that China’s growth is a fluke. We mean that the tremendous growth unleashed is beyond the control of a central planner. The inability to maintain a fixed price for fuel is one example.
Let’s put it geopolitical terms and turn the microphone over to John Robb, forecasting what a decline in global trade might mean in the next few years in the closing chapter of his excellent book, “Brave New World: The Next Stage of Terrorism and the End of Globalization.
Robb writes that, “High oil prices, a significant drop in global economic activity these high prices cause, and numerous attacks by global guerillas will put globalization in retreat.” This sounds right to us. Peak oil and the dollar crisis are leading to more expensive energy and money. A contraction in globalization is the result.
“The drop in trade and the inflation this creates,” he continues, “will be absorbed badly by most economies. It will be a disaster within China. The Chinese government lost legitimacy in the 1990s because of rampant corruption and inattention to the basic needs of its citizens. Its only source of legitimacy was based on market-state norms: economic opportunity and growth.”
“With the decline of global trade, the Chinese bubble economy will go into free fall. Any claims to its one form of legitimacy that formed over the last three decades of scintillating growth will be shattered in less than a year. Mass protests will rise from the 2006 average of two hundred a day to the thousands. Furthermore, these protests will become more violent.”
Here’s a question for you. If you accept Robb’s premise than the legitimacy and stability of China’s government is a function of economic growth, do you think that government will sacrifice that coal-fuelled growth (and social stability) and reduce carbon emissions because Australia has finally decided to sign Kyoto?
Markets and Money