seahorse3 wrote:We've all talked/preached for a long time that the world can't have economic growth (ak GDP growth) without oil production growth. But, are there any charts on that? Any charts that show oil production growth on a world wide basis with world GDP growth? Obviously oil production went gangbusters up to about 2005 and has increased some since then, but not enough to keep the illusion of economic BAU going. So, if there is a chart please link.
Alfred Tennyson wrote:We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
China: 'Scary' pace of change prompts investor rethink.
For the past 20 years, Taiwanese businessman Jimmy Chu, the head of a company that makes elevators and forklifts, has been spending most of his investments, and time, in mainland China.
Some 80,000 Taiwanese companies like Mr Chu's have poured a total of $120bn into the country in the past two decades, making Taiwan one of the biggest investors there and a key driver of China's economic growth.
But Mr Chu will soon open two new factories in Taiwan at a total investment of $70m, the biggest he has made at home in years.
He is among an increasing number of Taiwanese shifting at least some of their operations away from China - either to South East Asia or Taiwan - and adjusting their investment strategies in the mainland.
One of the main reasons is a significant rise in Chinese wages. Some estimate salaries have doubled in the past six to seven years. Companies are also now required to pay into Chinese workers' health insurance and pension plans.
"Labour costs in China are rising dramatically each year and the pace is scary," says Mr Chu, chief executive of Fair Friend Enterprise Group.
Using the same ratio of petroleum consumption to car production as in the non-BRIC graph above we see that cars before 2005 were under-produced and after that over-produced. The trend line of car production and petroleum consumption have completely different directions, meaning that BRIC cars are driven less. If that should change, there would be an unbridgeable gap in oil production of more than 25 mb/d
pstarr wrote:We have no chance of retooling anymore. We have no chance of installing adequate rail freight, commuter rail lines, or even bike lanes.
Some jobs will come back. Not just because of labor costs, but high fuel costs are biting into companies trying to ship products half way around the world. "offshoring" is still more dominant than "reshoring", but offshoring is no longer as dominant as it once was and the trend is shifting a bit.EdwinSm wrote:China still has a high rate of growth, but news like this implies that that will slow down. Will jobs come back to Europe or North America?
Here, there and everywhereEARLY NEXT MONTH local dignitaries will gather for a ribbon-cutting ceremony at a facility in Whitsett, North Carolina. A new production line will start to roll and the seemingly impossible will happen: America will start making personal computers again. Mass-market computer production had been withering away for the past 30 years, and the vast majority of laptops have always been made in Asia. Dell shut two big American factories in 2008 and 2010 in a big shift to China, and HP now makes only a small number of business desktops at home.
The new manufacturing facility is being built not by an American company but by Lenovo, a highly successful Chinese technology group. Lenovo’s move marks the latest twist in a globalisation story that has been running since the 1980s.
The first and most important reason is that the global labour “arbitrage” that sent companies rushing overseas is running out. Wages in China and India have been going up by 10-20% a year for the past decade, whereas manufacturing pay in America and Europe has barely budged. Other countries, including Vietnam, Indonesia and the Philippines, still offer low wages, but not China’s scale, efficiency and supply chains. There are still big gaps between wages in different parts of the world, but other factors such as transport costs increasingly offset them. Lenovo’s labour costs in North Carolina will still be higher than in its factories in China and Mexico, but the gap has narrowed substantially, so it is no longer a clinching reason for manufacturing in emerging markets. With more automation, says David Schmoock, Lenovo’s president for North America, labour’s share of total costs is shrinking anyway.
Second, many American firms now realise that they went too far in sending work abroad and need to bring some of it home again, a process inelegantly termed “reshoring”. Well-known companies such as Google, General Electric, Caterpillar and Ford Motor Company are bringing some of their production back to America or adding new capacity there. In December Apple said it would start making a line of its Mac computers in America later this year.
Firms are now discovering all the disadvantages of distance. The cost of shipping heavy goods halfway around the world by sea has been rising sharply, and goods spend weeks in transit. They have also found that manufacturing somewhere cheap and far away but keeping research and development at home can have a negative effect on innovation. One answer to this would be to move the R&D too, but that has other drawbacks: the threat of losing valuable intellectual property in far-off places looms ever larger. And a succession of wars and natural disasters in the past decade has highlighted the risk that supply chains a long way from home may become disrupted.
Third, firms are rapidly moving away from the model of manufacturing everything in one low-cost place to supply the rest of the world. China is no longer seen as a cheap manufacturing base but as a huge new market. Increasingly, the main reason for multinationals to move production is to be close to customers in big new markets. This is not offshoring in the sense the word has been used for the past three decades; instead, it is being “onshore” in new places.
Companies now want to be in, or close to, each of their biggest markets, making customised products and responding quickly to changing local demand. Lenovo, as a Chinese company, has its own factories in China. The reason it is moving some production to America is that it will be able to customise its computers for American customers and respond quickly to them. If it made them in China they would spend six weeks on a ship, says Mr Schmoock.
Under this logic, America and Europe, with their big domestic markets, should be able to attract plenty of new investment as companies look for a bigger local presence in places around the world. It is not just Western firms bringing some of their production home; there is also a wave of emerging-market champions such as Lenovo, or the Tata Group, which is making Range Rover cars near Liverpool, that are coming to invest in brands, capacity and workers in the West.
Such changes are happening not only in manufacturing but increasingly in services too. Companies may either outsource IT and back-office work to other companies, which could be in the same country or abroad, or offshore it to their own centres overseas. Software programming, call centres and data-centre management were the first tasks to move, followed by more complex ones such as medical diagnoses and analytics for investment banks.
As in manufacturing, the labour-cost arbitrage in services is rapidly eroding, leaving firms with all the drawbacks of distance and ever fewer cost savings to make up for them. There has been widespread disappointment with outsourcing information technology and the routine back-office tasks that used to be done in-house. Some activities that used to be considered peripheral to a company’s profits, such as data management, are now seen as essential, so they are less likely to be entrusted to a third-party supplier thousands of miles away.
China stocks enter bear market amid credit fears
Chinese stocks have fallen further amid continued concern over the impact of a credit tightening on its economy.
The Shanghai Composite SSE index fell 3.8% to 1,888.68 points, entering the bear market territory, often described as a 20% dip from the recent peak.
The index has dipped 23% since its high of 2,444.80 points in February.
The concern came after the central bank indicated its credit-tightening policy would continue, saying that the era of cheap cash was over.
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In recent days the People's Bank of China (PBOC), the country's central bank, temporarily turned off the flow of cheap money in an attempt to impose more discipline on its banks and reduce their reliance on credit.
That resulted in China's banks - mostly state-owned - charging each other some of the highest lending rates ever - over 25% in some cases - triggering fears of a credit crunch.
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"In fact, the central bank wants to root out the poorly-performing banks - especially those in the so-called shadow banking system."
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Analysts and investors have been concerned that if growth in China slows sharply, it will impact growth in the region's economies that rely on Chinese demand.
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+1ROCKMAN wrote:And assuming there’s a correlation between economic growth and energy consumption this also infers long term and stable growth in energy consumption. As far as “the decline in consumption (in Ireland) will level off, thus reducing the "growth" in supply to China” I don’t see the dynamic moving that way. China won’t be getting what energy is left after other countries have their fill IMHO.
Growth challenges in developed economiesWhy are developing countries managing to grow rapidly, even at double digit rates, while developed countries cannot manage to achieve any meaningful growth?
The answer lies primarily in global resource and environmental constraints. An overcrowded planet and massive industrialization of developing countries have brought mankind face to face with the limits of the planet. These limits tend to constrain global economic growth.
In the following pages we will examine the ways these resource and environmental constraints work their way through the global economy and the effects they have on its developed and developing segments. Since the growth challenges we are concerned about mainly emanate from resource and environmental constraints it is important to mention that an important difference between developed and developing economies is their resource intensiveness. This discussion is mainly about the resource intensiveness of developed and developing economies and the resulting growth challenges they face.
A more than 1000 percent increase in the price of oil in the recent decade, or so, has seriously affected most developed economies. It has rendered unviable a wide range of economic activities that previously made sense. All sectors of the economy including energy, transportation, housing, recreation and tourism, and retail are affected.
The same is not the case with developing countries. Low oil consumption in developing countries helps them keep their costs low, including wages. Developing countries wages are somewhat immune from oil price hikes. Business and economic activities suffer relatively little from oil price hikes in developing countries. Developing economies do not generally go into an economic recession due to oil price hikes. Their economic growth continues in spite of oil price hikes.
Economic growth is fast becoming a zero-sum game among countries because of fossil fuel supply constraint and the likely consequences of environmental constraints. Since resource limits will not allow the global economy to grow freely; growth in developing countries will exert offsetting downward pressure on growth in developed countries. Growth in developing countries will come at the cost of growth in developed countries. Migration of industries without replacement is just one example.
Utility maximization from oil
Assuming that the world is a consumer with a finite amount of oil; it will try to maximize its utility by equalizing the marginal utility from all its different uses of oil. Globalization has helped create conditions where the world is like a consumer trying to maximize its utility from scarce resources. In other words the global economy is trying to equalize its utility from oil use in all parts of the world.
Global utility maximization is working through resource, labor, end product and other prices, to equalize the utility derived from oil use in different parts of the world. Global utility maximization currently translates into reducing resource use in developed countries and increasing it in developing countries. This market pressure to reduce fossil fuel use in developed countries may be called a “market driven correction” but in real life it is the economic crisis!
Globalization and the resultant massive industrialization of developing countries brought two billion people in the global workforce. Consequently, a large number of businesses in developed economies are facing tough low wage competition from developing economies. As a result they are either closing down or moving to developing countries to take advantage of their low wages. When businesses move overseas they not only take the employment and income that they created but also the opportunities and the potentials that they created for other businesses; they take an additional piece of the economy with them.
Growing Competitive Disadvantage of Developed Economies
Almost all production and consumption activity in developed countries has a significant component of oil or energy use. Due to high and ubiquitous usage of fossil fuel, the cost structures in developed countries get pushed up higher by oil price hikes. Wage standards are also pushed up or lose downward flexibility because of oil price hikes, particularly given the cumulative effect of hikes in the recent decade. Therefore competitive abilities of business in developed countries tend to be diminished by oil price hikes and related expectations.
In developing countries, on the other hand, oil price hikes do not significantly affect wages and other costs due to their low usage of fossil fuel. Low intensity of energy use also helps them keep wages low. Due to low intensity of energy use in developing countries their costs do not go up as much by oil price hikes as they do in developed countries. The economic effects of oil price hikes are many times higher in developed countries than in developing ones. Developing countries gain some competitive advantage over developed countries every time oil price increases.
Global resource constraints, i.e. rising oil prices, have put developed countries at a significant and increasing disadvantage vis-à-vis developing countries. If developed countries continue on the fossil fuel path they will keep losing jobs and business to developing countries.
Oil buying power of developing countries
Since consumers in developing countries have a low rate of oil consumption, they are likely to derive higher marginal utility from consumption of oil compared to that in developed countries. Therefore consumers in developing countries are more likely to be willing to pay for rising oil prices. Oil consumption in developing countries will keep pressure on oil prices.
It may seem that developed countries have more buying power, but for oil and similar global resources, the production and consumption economics favor developing countries and give them better buying power. Since oil price hikes do not significantly affect wages, only direct costs have to be transferred to end products in developing countries. Direct costs are easy to transfer to end product prices. Oil price hikes are easier to deal with there.
Developed countries have built their economies on oil prices of around $10, or $20, a barrel whereas developing countries are building theirs on $100 a barrel. Developing countries therefore are able to deal with high oil prices without much pain or restructuring.
Developing countries’ growth is likely to continue in spite of rising oil and other resource prices. The same cannot be said about developed countries. Because of high intensity of energy and oil use developed economies will be increasingly crippled by rising oil prices.
kublikhan wrote:+1ROCKMAN wrote:And assuming there’s a correlation between economic growth and energy consumption this also infers long term and stable growth in energy consumption. As far as “the decline in consumption (in Ireland) will level off, thus reducing the "growth" in supply to China” I don’t see the dynamic moving that way. China won’t be getting what energy is left after other countries have their fill IMHO.
I think you have it backwards db. IMHO, developing countries will be the ones determining oil demand growth and developed countries will see their oil consumption continue to shrink. Developing nations derive a much higher marginal utility for every barrel of oil they consume.
Alfred Tennyson wrote:We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
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