Newsletter Reviews

China, Metals, and Your Money

SOURCE: [Casey Research]

Dear Readers,

I'm in Shanghai as I type, and the "China Miracle" is in full bloom. Few variables are more important in the world of metals and mining investment than the strength and sustainability of the extraordinary bull run the Chinese economy has enjoyed for years. So many pundits, critics, and cheerleaders keep pouring out opinions on this question that they saturate the news – but leaves no one the wiser.

I'm sorry to say that, as arrogant as I am, I do not have quite the hubris to tell you that I have figured China out and know what is and will be. Certainty is not an option here, and if anyone offers it to you, I suggest you check your wallet afterward.

But I can tell you that I've traversed China from south to north, from east to west. I've spent days driving through the countryside, passed through China's largest cities and smallest villages. I have seen a China that is visibly, radically different than the China I saw for the first time a mere six years ago. Ten percent growth compounded over six years is a 177% difference – and the reality behind such numbers is unmistakable. Yes, there is still great poverty here and a lot of people living on a subsistence basis, but this is not a poor country. The fraction that has been lifted to middle class and above is enormous, and the country's GDP is now the second largest in the world.

Shanghai itself may not be the financial capital of China any more, as in a politically dominated economy like this, all the big decisions get made in the political capital of Beijing, but the wealth here is tremendous. The proliferation of high-tech buildings, modern housing, shopping malls, expensive cars, and more defies belief.

But the real shocker is the modernization of small towns and villages. Oxen have been replaced with tractors, rags replaced with bright new clothes, mud brick and thatch replaced with real brick and glass and electricity and satellite TV. The material improvement in the lives of hundreds of millions of people is spectacular.

To me, the most important economic consideration is that whatever the degree of misallocation of capital may be here, the allocation of most capital is to infrastructure, factories, power generation, mine development, agriculture, housing, and generally to durable and productive assets. China is gearing up to flood the world with products on a scale that could be an order of magnitude greater than what we've seen so far.

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