Wednesday, March 16, 2011

Why US so rich and China so poor?

US is rich due to: 1. Very high resources (oil, mineral, farm land...) per capita, 2. Welcoming immigrants (actually all are immigrants once except the few natives), and 3. Geographic location isolated itself from WW2.

US is declining, but it is still #1 in many areas by many measures.

China in last 250 years is poor due to: 1. Less resources per capita, 2. Semi colonization from the West/USA/Japan about 250 years ago, and 3. Poor governance in Mao's era. To be fair, Mao had contributed a lot to China.

Even if it may be #1 in GNP in our generation, GNP per capita which is more important to me is just the average.

Basically US is resource rich per capita. China has about 4 times the population of US, but US's arable land doubles that of China. GNP per capita has similar disparity.

It could be that a civilized nation like China, India, Greece, Egypt, and Italy has extracted too much national resources through out her long history. US has been 'discovered' and populated only in last hundreds of years. Even with limited history, US influences today's world in technology, music, movie, military... more than any of the described civilizations.

China is improving. when you compare the HSR, airports, infrastructure, you can easily see China is catching up and in many cases passes US. It is a matter of time that US will wake up and concentrate in the economy and end to be the world policeman.

China is a long way from the Tang period when Chinese had the highest living standard/culture/science compared to the rest of the world. At one time, China wore fancy clothes made in silk and lived in well-built houses while the westerners wore animal skins and lived in caves. When we do not improve, others will catch up and pass us.

China has been dominant in last 16 (some argues 17) of the last 20 centuries. For the last 3 centuries, they're down until the last 30 years, but they are waking up and will roar and shake the earth as Napoleon predicted.

Judging from the progress and the education, I do not believe it will take more than one generation for them to catch up. They also learn the tough lessons on defending themselves from foreign invadors (Brits, French, Russia... and Japan), understanding the world (missed the last industrial revolution started in Britain), governance... They also have a determination to succeed to a more prosperous country.

Along the way, they will have problems and I do not bet against them as many past problems have been fixed.   

The joke of the century: the richest country (US ) borrows money from the poorest country (China at one time).

The world is getting smaller and we should achieve a better world without trying to be #1.

(c) TonyP4 2010. Written in 2/05/11. Updated in 7/10/11.

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.

Friday, March 4, 2011

Rare Earth

China has the right to reduce rare earth export to its advantage, just like OPEC controlling oil. China has been giving a free ride to the world at the expense of its environment.

China uses it as a weapon against the dispute with Japan and/or other countries. Despite the mutually beneficial trade, Japan has been brutal to China in the last 250 years. The role in Opium Wars and the criminal acts in WW2 are just some examples. The two A-bombs should be dropped on the imperial palace, not for the innocent folks.

With the restriction of importing weapons from US, should China do the same in restricting the rare earth that helps US weapons?

Rare earth elements are available in many parts of the world. They are not mined due to the cost and the environment damages. It is about time China cares about its own environment and charges its minerals as much as the market can bear – it is a free market after all.

All the companies in mining these minerals will enjoy appreciation in the short term. However, it is the riskiest investment by now as we do not know what is the next move by China.

Chinese want to use this strategy to improve foreign investment and advantage in its industries that use these rare earth like hybrid cars and turbines. WTO cannot accuse China in limiting export of these rare earths as there is no such precedent.

China should and should charge these rare earths at 10% below the closest competitors. If they are more than 10% less, the local governments will step in to protect their industries and/or take actions.

China has at least 3 years before these foreign mines are ready - as of this writing some mines on rare earth are ready now. By then, China will decide the prices again based on whether they want to capture the rare earth market and/or their products that use these rare earth elements.

(c) TonyP4 3/8/11

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.

Defending China on Intelligent Property

You may be surprised US was the intelligent property violator. US copied/stole ideas from the west without paying any royalty in the colonial days. Even at the end of WW2 US did not pay royalties to Germany in using the atomic bomb technology.

There are phases of a country moving from undeveloped to developing, and then developed country. Their major characteristics are listed. One's theory.

Phase 1. Low labor cost. Copy/steal. Low-quality consumer products.

Phase 2. Moving up the value chain. Good infrastructure. Higher quality.

Phase 3. High-end products. High quality. Innovative. Protect intelligent property rights.

China is moving from Phase 2 to Phase 3 now. Around 16th century, about half of the inventions and their derivatives were from China and no one paid royalties to China. This is the time when China was in Phase 3 relative to the rest of the world. After the semi colonization about 250 years ago, China was bankrupt and moved back to Phase 1.

China has intelligent citizens to be innovative and could churn up intelligent products like Facebook, Google... However, as long as there is no law in protecting IPs, they will not be materialized. It may take about 10 years (hopefully less) for China to protect IP.

Should IP be protected in developing countries?
Most citizens in developing countries cannot afford to buy DVDs, software..., so there are no real heavy losses to Hollywood, software providers...

New drugs are copied by China and India illegally and also distributed to poor countries. Haitians and most Africans cannot afford to buy the drugs at the asking prices. Should we let them die? No, we can treat them as charities to developing countries.

(c) TonyP4 2/1/11

Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.