We don't understand jack...

About China.  I read this on MR recently:

In just two years, from 2011 to 2012, China produced more cement than the US did in the entire 20th century, according to historical data from the US Geological Survey and China’s National Bureau of Statistics. [More]

That quote itself is from the FT, but I used this pointer so you could see the comments. Most of the but-that-can't-be-right arguments are noted and dispensed with there with good links.

In fact, to buttress this mind-blowing fact, consider this previous CFOTD:

Before the Communists came to power in 1949, China had only 22 dams of any significant size. Now the country has more than half of the world’s roughly 50,000 large dams, defined as having a height of at least 15 meters, or a storage capacity of more than three million cubic meters. Thus, China has completed, on average, at least one large dam per day since 1949. If dams of all sizes are counted, China’s total surpasses 85,000. [More]

I mentioned this factoid on the show and the incredulity was uniform.  I'm still unable to wrap my intuitive thinking around it. The unavoidable suspicion is if I can't come to grips with this solid evidence of the enormity of Chinese construction activity, what makes me think I have any feel for their food industry?

Since I had been pondering "whither farmland prices?", oddly enough the two strands intertwined. I came up with these working theories:

1. The economy of China is not just bigger than we imagine, it is bigger than we can imagine.
2. We are most probably underestimating Chinese demand for ag products in the future.
3. By a lot.

Just like we totally missed - as in NOBODY called it - the incredible run-up in farmland prices in the last decade, I think we're about to do it again. China can drive the demand for protein especially to support routinely higher grain prices for the foreseeable future.

Bottom line, I see much lower odds of success by getting bearish on farmland simply because some bankers want to be the next Nouriel Roubini. They were wrong in 2009. I think they are short-sighted now.

Update:

Just like I did, the enormity of this disparity has some groping for a clearer picture.  So:

It's not heavily influenced by imports/exports.  The US only in the last few years have imported much more than a few percent.  China is currently producing about 25 times ( 2.2Btons vs. 74Mtons) our output and exporting. It exports ~17 Mtons. 

This complicates predictions...

For China's ag production. 

Under the smoggy sky, another environment hazard is brought into the spotlight in China as an official report confirmed Thursday about 16.1 percent of its soil is polluted.Alarmingly, about 19.4 percent of the farming land is polluted, said the report issued jointly by the Ministry of Environmental Protection and the Ministry of Land and Resources. ( The general condition of the land is "not optimistic" as the quality of farming land is worrying and deserted industrial and mining land suffers serious pollution, according to the report.It was based on a survey conducted from April, 2005, to December last year on about 630 square km of land across the country, except Hong Kong, Macao and Taiwan.The pollution has been caused by complicated factors over a long period of time. "The main pollution source is human industrial and agricultural activities," the report said.Industrial waste contaminates land around factories and mines while automobile exhaust pollutes air along the country's main highways.Irrigation by polluted water, the improper use of fertilizers and pesticides and the development of livestock breeding cause pollution to farming land.Chen Tongbin, research fellow with the Institute of Geographic Sciences and Natural Resources Research with the Chinese Academy of Sciences, told Xinhua that the report set off "a loud alarm" for the country's economic development pattern and environmental protection system."Compared with air and water pollution, soil pollution is more difficult to control and remedy, taking a much longer time and needing more resources," Chen said.In addition to reduced quality and quantity of crops that threaten people's health upon consumption, such pollution might also result in health hazards for people living in areas where there is polluted soil after breathing in or having skin contact with pollutants.While affecting the normal growth of plants and microbes and damaging the soils' function to preserve nutrients, these pollutants are likely to permeate into underground layers and contaminate drinking water sources.In breakdown, 11.2 percent of the country's surveyed land suffers slight pollution, while 1.1 percent is severely polluted.About 2.3 percent of the land is lightly polluted and 1.5 percent suffers medium pollution.Some 10 percent of woodland and 10.4 percent of grassland is polluted, the report added.About 82.8 percent of the polluted land is contaminated by inorganic materials and the top three pollutants are cadmium, nickel and arsenic. [More]

Those three are bad news, both physiologically and agronomically. They are one reason I have always been leery of gypsum from power plants as a fertilizer, despite federal limits. Once it's in your fields, it's there forever.

You never know when future research could lower the allowable limit for heavy metals, and I can imagine the effect on the land value.

Anyhoo, while we seem to be constantly surprised by the often unexpected amount of Chinese buying, maybe one reason is we are starting with an domestic acreage estimate too high.

They've come a long way, baby...

Those enterprising Chinese!  They are striving to match the transparency and integrity of the American financial sector, and have great leaps of progress.  Even in ag industries!

A finance manager in China reached out to her bosses, concerned that auditors would discoverAgFeed Industries Inc. (FEEDQ) was reporting bogus revenue.“Sometimes I really want to work well on the real stuff, but the need to balance the falsified data often takes up my time,” Wu Jiangqi wrote to supervisors at the Nanchang, China-based animal-feed company in 2009, according to a copy of an e-mail she sent.Wu’s e-mail focused on top management’s “most serious headache, which can only be resolved by money,” then-Chief Executive Officer Xiong Junhong responded. Officials were “thinking of ways to get 30 to 40 million to resolve this!” he wrote.The e-mails, which were translated from Chinese, and other documents obtained by Bloomberg News provide the first detailed glimpses behind what a U.S. Trustee in bankruptcy court called “massive fraud” in AgFeed’s Chinese operations. Managers in China openly discussed their methods for doctoring results, according to the e-mails. As evidence of irregularities began accumulating, executives and directors waited at least four months before disclosing any of it to investors, corporate documents show. [More]

I think they are ready for Lesson #2: What not to put in e-mails.

Chinese CAFO's...  

As despised and frankly unappealing as CAFO"s are, they still are the best current method to produce a lot of pork. In a country where it may be easier to slide around environmental restrictions, they would be a real protein efficiency boost.

And that's what China seems to be doing.

In the long run, China’s move from backyard pigpens to huge industrial farms like Jiahua Pig Breeding, which benefit from economies of scale and more stable production plans, could help calm volatile boom-bust pork cycles and bring inflation more under control.

“The faster the trend to scale up and the faster that backyard breeding is phased out, the more volatility will be dampened,” Hua Jianqing, Jiahua’s president and principle investor, said from his headquarters in rural Zhejiang, south of Shanghai.

“It won’t be a year or two,” he said. “My analysis is that it will take three to five years to reach the balancing point.”

Jiahua keeps 5,000 breeding sows at a time and raises 100,000 pigs a year.

Squirming and oinking, young sows are lined up daily for buyers peering through a glass window. Those that are picked can be shipped hundreds of kilometers to help seed yet another huge farm. Large-scale operations with about 3,000 pigs each now account for about 20 percent of China’s herd, but huge, American-style farms of Jiahua’s size account for only about 2 percent.

The record-high margins last summer created a classic boom in investment in pigs, but now a drought in the United States is pushing up the price of grain used for feed, prompting owners of small farms to slaughter their animals and setting the stage for a possible supply shortage in months to come.

Small farms still produce enough hogs — about one-third of the national herd — that their decisions to buy more piglets or sit out a season can have a big influence on prices.

“If fewer choose to raise, in the third quarter of 2013 we see a shortage of pork and a run-up in prices,” said Andy Rothman, China strategist for the brokerage firm CLSA in Shanghai. [More]

It also suggests their appetite for corn will be a little more resilient to high prices, just as our big operators have proven to be remarkably tough during this current runup in prices.

Suppose China decided to _____...  

Fill in the blank. An enormous number of people with a tenuous grasp of macroeconomics and less understanding of foreign policy are lobbing out bizarre scenarios that in truth simply arise from blatant xenophobic "Yellow Peril" panic.

One of my favorites is: CHINA"S GOING TO CALL IN OUR LOANS!!! (I use all caps because that seems to be the standard format).

And, um, how would they do that, zactly? Let's check in with someone who actually studies these things.

No.  No, no, no, no, no, and no. 

To elaborate a bit further:  

First, it wouldn't be enough for China to stop buying Treasuries -- as Joe Weisenthal showed with some fun charts a few weeks ago, China has pared back its Treasury purchases intermittently over the past few years -- with zero appreciable effect on U.S. interest rates. (see non-panda-hugger Paul Krugman on this point as well).  No, for China to have the effect that Friedman envisions, they would also have to actively dump most of their holdings of U.S. debt as well.

So what if they do?  Well, second, while Romney's stated China policies border on the destructive, the "labeling" move is bone-headed rather than truly calamitous. China wouldn't dump its debt unless things got really bad between the two countries.  Not even Stephen Roach thinks this would be the initial Chinese response -- and I think Roach is being way too gloomy about Sino-American relations under Romney. 

The reason China won't respond with the nuclear option of dumping all its U.S. debt holdings is that -- to repeat a theme -- this move would hurt China way more than it would hurt the United States.  The far more likely response by China would be to retaliate with trade measures.  This would not be good, as China is now the third largest export market for the United States.  Beijing can hurt a Romney administration by reducing its American imports far more adroitly than trying to trigger another financial crisis. 

Now, for the record, I don't think Romney should label China as a currency manipulator on day one, and I think Friedman makes some trenchant observations on Romney's consequences-free foreign policy statements later in his column.  But this Niall Ferguson-lite version of Sino-American relations is bad international relations theory and really bad economics -- and yet Very Serious People keep trotting it out.  

I really, really wish this would disappear from public discourse.  But it won't.  So, most likely, my desk is gonna get dented a few more times before Election Day. [More]

Thinking about it, this is very similar to the worry that Arabs were buying up all the good property in the US back during the 80's (?) or some such time. I never could figure out why that was a big deal. It's not like they could take a skyscraper back home. 

What I keep coming back to how hard it is to comprehend the glut of wealth in the world. It has to be somewhere, and if not in relatively high-quality sovereign debt it would be "bubblizing" other assets even more than currently is the case.

While I agree we need to address our fiscal policy and move toward a sustainable debt level, the current simplistic view of debt as anathema or a weakness to be exploited by China is unhelpful and inaccurate. We need to fear the effects of enormous and concentrated wealth more.

I'm just sayin'...  

Connect these two dots...

Consider the federal government. Of the 23 cabinet members, only the Secretary of Energy and the Administrator of the Environmental Protection Agency have engineering or natural science backgrounds. Even they are exceptions. Of the 22 former heads of the Department of Energy and Environmental Protection Agency, only three had engineering training. The majority were lawyers.
In Congress, out of 535 members, six are engineers and one is a physicist. (All told, there are more accountants, musicians, and talk show hosts.) By contrast, eight of the nine members of the Chinese Politburo, the highest-ranking officials in China, have engineering degrees. [More]

Meanwhile, Chinese citizens give a 90% approval rating to their national government. Approval rating for the US government is around 17%. 

Mere coincidence.

I think not.

Chinese Saying of the Day...  

A little nugget I found as I was wandering around the Intertubes:

 The situation can be summed up in a popular Chinese expression that says “Men turn bad once they get rich, while women get rich only after they turn bad.”[More]

One a related note, I am halfway through The Fall and Rise of China.  Superb! Highly recommended.

This is the competition...  

In an amazing and slightly horrifying article, the NYT details why the iPhone is made in China. And it's not just low wages - it's simply incredible organization and speed. The most jaw-dropping revelations:

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals. 

...

The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days. [More of what should be mandatory reading to understand globalization]

Just like the old basketball saw, "You can't teach height", we still struggle in the US to grasp what millions of motivated low-wage workers can allow in terms of flexibility and market response. As manufacturing increasingly depends on shorter time horizons and being first to market, the ability to move literally hordes of people around to fit the task is a dominating advantage.

But just as we have centers for specific business activities (Silicon Valley, Motor City, Wall Street) it might be that we are moving to global focal points for manufacturing, finance, technology, etc. For us in agriculture we need ot work to make sure we are the leading location for agriculture.

I'm not sure that is our goal right now, and the sacrifices (less subsides for production, more for research, education, for example) needed to make it happen aren't being asked or made.

Update: For a refreshingly upbeat case that clearly articulates the other side of the story for the US, read this gem by Dan Dresner.

China is for real...

We are all tired of hearing about China and their remarkable economic progress. But you ain't seen nuttin' yet.

108 Giant Chinese Projects

This is a 280 mph train project.  ($5B)

Check out the rest at the above link.

While you were trying to plant corn...

This forecast was quietly issued.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.Put that in your calendar.It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s. [More]

For help with the idea of Purchasing Power Parity:

In its "absolute" version, the purchasing power of different currencies is equalized for a given basket of goods. In the "relative" version, the difference in the rate of change in prices at home and abroad—the difference in the inflation rates—is equal to the percentage depreciation or appreciation of the exchange rate. [More]

This is not the shocker it may seem, IMHO. Other than simple bragging rights, this crossing of trends was clearly indicated years ago.  The date is mildly startling, but my guess is many will simply dismiss the idea of PPP, and then resort to per capita GDP in turn to satisfy their search for a number that keeps the US on top.

Kind of like the curious "jobs that depend on agriculture" number that FB arbitrarily trumpets.

Moreover, we really don't know how this will affect our lives. My guess is not much, as our fortunes will be made or undone at home by our own policies.

Free trade saves the day?...

It's a stretch but at least one economist thinks China's savings glut is fueled by their worsening sex ratio (men/women population). Here's his logic:

The lack of a social safety net is often blamed for the high Chinese saving rate. Without welfare and government pensions the Chinese must save to self-insure themselves. But Mr Wei pointed out that even as the government has extended more social welfare programmes, the saving rate has continued to rise. He believes the uneven sex ratio can explain half of the increase in private saving between 1990 and 2005. He explained that the marriage market is becoming very competitive with so few girls. Chinese parents want to accumulate as much wealth as possible to ensure that their son can attract a wife. It is also important to provide sons with the best education possible. A competitive marriage market means that members of the disadvantaged gender must raise their game, which in China means greater wealth and education.
Mr Wei also reckons the sex ratio can explain capital accumulation in the corporate sector. The desire to accumulate wealth means that boys and their parents are more likely to become entrepreneurs, work more hours and take more unpleasant jobs. He found higher rates of entrepreneurship in areas with more skewed sex ratios.
Many different factors can explain global trade imbalances. The currency likely plays a role alongside high saving rates. But unless Chinese citizens start to consume more, a large fraction of the Chinese current-account surplus will persist. Too much saving may seem like an enviable problem, but there can be too much of a good thing. If sex ratios are as important as Mr Wei’s argues, the only way the Chinese can restore global financial order is to either import women from other countries, export men, or promote polyandry. [More]

Then if our economy is saving too little, and our sex ratio is slightly the reverse...

No, no don't tell me - I've just about got it.

It actually never occurred to me...

I might be right about the Chinese yuan and their food problem.  But guess who supports appreciation in their currency all of a sudden?

China’s yuan traded near a 17-year high after Chinese Premier Wen Jiabao said a stronger currency will benefit the nation’s economy.
While the appreciation will be gradual, strength is beneficial as it curbs inflation, Wen said yesterday in an online interview with citizens. The government has set an annual economic growth target of 7 percent for the five-year period through 2015, compared with 7.5 percent for the preceding five years, Wen said. [More]

Commodities just got a little cheaper for some.

[Note also the slower growth targets.]

China, ctd....

Did some surfing on my own and found this re: heavy metal pollution and grain in China. This appears to be Kevin's source.

[Update]

Here's more on the problem.

 Meanwhile, both central government agencies and local governments in charge of areas with heavy metal pollution remained silent.

All this shrugging-off is unacceptable. It’s a fact that excessive levels of cadmium were found in rice grown in several areas, and the public had the right to be informed.

It’s true cadmium poisoning is not as dangerous as, say, cyanide. And contamination levels found so far have not been too much higher than the levels considered safe. But these arguments are outweighed by the widely recognized danger to human health posed by the accumulation of cadmium in the body. In fact, heavy metal poisoning tends to be chronic, and any clinical evidence may take years to surface.

Already, we’ve seen cases of heavily polluted rice fields in some areas of the Guangxi region and Hunan Province. Some villages in these areas have reported local citizens with symptoms of cadmium poisoning. Meanwhile, rice is still being grown in paddies laced with cadmium. It’s also being sold and eaten in those areas.

Thus, government inaction in the face of this toxic threat has – and continues to – put human health at risk. And the public should be made aware of the wider problem of heavy metals polluting the nation’s farms. Not only cadmium but also by other toxic metals such as lead, arsenic, mercury, copper and zinc may be tainting the nation’s rice as well as other crops.

China has given a lot of attention to food safety in recent years. But soil pollution is the greatest threat to the nation’s food safety. Even the government’s environmental protection authorities have conceded this fact. Up to 12 million tons of grain are estimated to be tainted by heavy metals every year, costing the economy more than 20 billion yuan. Human health is jeopardized as harmful substances from polluted soil make their way into crops and our bodies, causing disease.

All this heavy metal pollution has persisted due to prolonged government failure to act. Tackling soil pollution is difficult, but authorities should not use technical hurdles as an excuse to ignore the problem. Nor should they hide the truth or play down the problem for fear of public panic. Instead, government officials should take advantage of this new spike in interest to review their environment, farm and food management practices, and then take a holistic approach to tackling the problem. [More]

As you can tell from the above source (read the whole article) this event will be used to buttress the case against industrial agriculture and many modern farming techniques in favor of agrarian ag.  But you can't get much more agrarian than China right now.

What is suggests to me is we may be picking exactly the wrong time to decide we are victims of too much environmental regulation. All of our carping about the costs of compliance will seem pretty petty when confronted with a public that wants to know how we will prevent such a mess here in the US.

Chinese history you need to know...

Right now. I am finishing Mao's Great Famine by Frank Dikotter. It is an appalling account of the social and economic consequences on the insane "Great Leap Forward" in the late 1950's and early 1960's. It is not an easy read as the author painstaking documents absolutely horrendous accounts of starvation, stupidity, corruption, death on an imaginable scale, etc.  [I believe I have also recommended a much earlier book about that same event: Alive in a Bitter Sea.]

But this week's market action and these remarks by Kevin Van Trump prompted me to add to my speculation about China, food and the immediate future.

MUST READ...China's Years Of Pollution Could Actually Cost Them A Huge Portion Of Their Crop
China's poor farming practices and years of polluting their land may have finally caught up with them.  The news is just starting to surface, but from what I was told last night millions of acres of Chinese farmland could actually be polluted with heavy metals.  The Chinese government may have actually know of the problem since 2007, but have been able to keep a tight lid on things until now.  Sources claim that 12 million tons of grain may actually need to be destroyed or may have already been destroyed in the past few months.  The story circulating is that China had been pressed to build massive irrigations systems several years back to eliminate ongoing drought issues.  The land and water sources where the water was pulled from was later found to be highly polluted with heavy metals and other toxic substance.  The authorities, at all levels, have tried to hide the problem even though cases of pollution and pollution-related diseases, above all in children, have been breaking out like wildfire.  There have been documents uncovered that former Land Minister Sun Wensheng warned the government in 2007 that at least 10% of China's 295 million acres of farmland were actually contaminated by heavy metals, toxic pollutants, and cancer-causing cadmium.  Prime Minister Wen Jiabao and Environment Minister Zhou Shengxian were put on the spot and have promised to start some type of clean-up campaigns after admitting that metal poisoning had become much worse than they had ever anticipated.  Supposedly the Environment Ministry, yesterday announced on its website a plan to tackle pollution in 14 heavily affected provinces.  However, in typical Chinese political fashion it refused to provide any details about how much damage and how extensive the problem has become.  The plan and details of the problem are still being considered a national secret.  If this is true it could certainly be the "smoking gun" that China has been trying to cover up, and could ultimately let the cat out of the bag.  If it hasn't happened yet, I can almost guarantee you China's poor environmental practices will ultimately catch up with them.  

(Kevin doesn't offer any links to this, but I've e-mailed him for any source he can share.)

Anyway, match that up with these passages from MGF:

Mao's Great Famine (Frank Dikötter)
- Highlight Loc. 998-1005 | Added on Sunday, February 06, 2011, 10:27 PM

But most of the time buildings made of mud and straw were torn down to provide nutrients for the soil. Walls of buildings where animals had lived and especially where they had urinated, such as stables, could provide useful fertiliser. At first old walls and abandoned huts were destroyed, but as the campaign gained momentum entire rows of houses were systematically razed to the ground, the mud bricks shattered and strewn across the fields. In Macheng, nestled against the south of the Dabie mountain range in Hubei, thousands of houses were demolished to collect fertiliser. In January 1958 the model county was exalted by Wang Renzhong, party secretary of the province, for reaching a rice yield of six tonnes per hectare: ‘Let Us Learn from Macheng!’ the People’s Daily declared rapturously. Once it had been praised by Mao for its experimental plots, Macheng became a shrine.
==========
Mao's Great Famine (Frank Dikötter)
- Highlight Loc. 1005-14 | Added on Sunday, February 06, 2011, 10:28 PM

In the following months it attracted half a million cadres, including Zhou Enlai, foreign minister Chen Yi and Li Xiannian. By August a new record was achieved with a yield of 277 tonnes of rice per hectare: ‘The Era of Miracles!’ the propaganda machine proclaimed.18 On the ground the pressure was unremitting, wild boasts and false figures vying for attention. In one Macheng commune the head of the Women’s Federation took the lead by moving out of her house and allowing it to be turned into fertiliser: within two days 300 houses, fifty cattle pens and hundreds of chicken coops had been pulled down. By the end of the year some 50,000 buildings had been destroyed.19 Trying to outdo one another, other communes throughout the country followed suit. In Dashi, Guangdong, a commune that also attracted nationwide attention with its ‘Twenty-five-Tonne Grain University’ and ‘Five-Thousand-Kilo Field’, local cadres pulverised half of all houses in Xi’er.20 Other organic matter found its way into the fields: in parts of Jiangsu province, the land was covered in white sugar.
==========
Mao's Great Famine (Frank Dikötter)
- Highlight Loc. 3494-3506 | Added on Monday, February 21, 2011, 01:38 PM

Throughout the country the irrigation projects, built by hundreds of millions of farmers at great human and economic cost, were for the main part useless or downright dangerous. Many violated the laws of nature, resulting in soil erosion, landslides and river siltation. We saw how in Hunan, a province blessed with fertile soil, river valleys and terraced fields, lush mountains covered with primeval forest were defaced by local communes during the steel drive. The denuded mountains were washed bare by torrents, since there was no longer a canopy to intercept rainwater. As the capacity of forests to retain water was degraded, natural hazards were amplified into disasters. Large irrigation projects that had disrupted the natural flow of water with stopbanks, culverts, reservoirs and irrigation channels only aggravated matters. Accumulated deposits heightened the bed of local rivers in Hunan by up to 80 centimetres, so that water threatened to spill over and flood the neighbouring villages.39 Local reclamation projects made things worse. Launched by the state and local communes in response to food shortages, they showed little sense of stewardship of nature. In Hunan over 100,000 hectares were opened up, much of it on steep mountain slopes. The rain then flushed the soil and took it to the newly built reservoirs, choking them with sediment. One team in Longhui reclaimed ten hectares on a gradient against the mountain: the runoff from torrential rain in May 1962 took enough soil to silt up thirty dams and five roads.40

[BTW, these are what clippings look like when uploaded from a Kindle. The numbers are footnote numbers that lose formatting.]

For some reason I am fascinated by this period as it was a time when I was just beginning to be exposed to world events via The Weekly Reader. I remember reading about the GLF at the time, so I assume the Chinese did a masterful job of telling about the scope of their incredible and stupefyingly illogical programs.

Please also listen to my commentary on USFR this next week as I add in Hu's own biography (he's an engineer, for one thing) to my earlier remarks to guess what might be going through his mind right now. Also keep in mind he can remember the horror of the GLF firsthand.

Imagine you are Hu Jintao right now...

Things have been going freakin' great. I mean, China's growth rate is the envy of the world, you've got more dollars than Bernanke stashed away, and your economic problems are relatively minor.

Or were.

First of all, even with your control of the state owned media, you realize Twit happens (to leak through). Now as your anxious comrades are calling you to share, it seems popular opinion about authoritarian regimes has dropped a little in the polls lately.

Skittish domestic security officials responded with a mass show of force across China on Sunday after anonymous calls for protesters to stage a Chinese “Jasmine Revolution” went out over social media and microblogging outlets.
Although there were no reports of large demonstrations, the outsize government response highlighted China’s nervousness at a time of spreading unrest in the Middle East aimed at overthrowing authoritarian governments.
The words “Jasmine Revolution,” borrowed from the successful Tunisian revolt, were blocked on sites similar to Twitter and on Internet search engines, while cellphone users were unable to send out text messages to multiple recipients. A heavy police presence was reported in several Chinese cities.
In recent days, more than a dozen lawyers and rights activists have been rounded up, and more than 80 dissidents have reportedly been placed under varying forms of house arrest. At least two lawyers are still missing, family members and human rights advocates said Sunday.
In Beijing, a huge crowd formed outside a McDonald’s in the heart of the capital on Sunday after messages went out listing it as one of 13 protest sites across the country. It is not clear who organized the campaign, but it first appeared Thursday on Boxun, a Chinese-language Web site based in the United States, and then spread through Twitter and other microblogging services.
By 2 p.m., the planned start of the protests, hundreds of police officers had swarmed the area, a major shopping district popular with tourists.
At one point, the police surrounded a young man who had placed a jasmine flower on a planter outside the McDonald’s, but he was released after the clamor drew journalists and photographers.
In Shanghai, three people were detained during a skirmish in front of a Starbucks, The Associated Press reported. One post on Twitter described a heavily armed police presence on the subways of Shenzhen, and another claimed that officials at Peking University in Beijing had urged students to avoid any protests, but those reports were impossible to verify Sunday.
The messages calling people to action urged protesters to shout, “We want food, we want work, we want housing, we want fairness,” an ostensible effort to tap into popular discontent over inflation and soaring real estate prices. [More]

Your attention focuses on the protesters' first demand, but then you remember the inconvenient truth just whispered to you recently by your agricultural advisers: the crop isn't good.

The Chinese government has said the country's worst drought in decades is likely to continue, putting the winter wheat harvest at risk.

The Ministry of Agriculture said the drought had worsened in some wheat-growing regions despite snowfalls.
Large swathes of China have had almost no rain since October, affecting millions of hectares of crops and leaving many short of drinking water.
Analysts say crop shortages in China could affect prices around the world.
The country's central bank is offering emergency loans for drought-relief projects in northern, central and eastern areas.
Officials are trying to calm fears over shortages, saying the country has enough in reserve to meet demand.
But food prices have been rising quickly in China for months - and people are grumbling, says the BBC's Michael Bristow in Beijing.
China's leaders will not want this latest drought to push prices even higher, our correspondent says.
Last month, the authorities pledged $15bn (£9.4bn; 98.6bn yuan) in support to help farmers cope with the effect of the drought.
Forecasters say the dry weather could continue well into the spring. [More]

Suddenly the urgency of maintaining exports by artificially keeping the yuan cheap runs headfirst into the vision of a Tienanmen-Square version of Tahrir Square.

I'm thinking you keep buying commodities - all of 'em. And you let the yuan creep up to make the cost lower. And you let the factory owners lump it.

Not the end of the world...

What if China does slow down their economy?  Jerry Gulke accurately points out how important China is to grain prices right now.

With no signs indicating a curb in China’s corn demand, there’s going to be reasons to take the market higher. But with weak economic news coming from that country this week, it shows exactly how much control they have over corn and soybean prices, says Jerry Gulke, president of the Gulke Group.
They are the big customer for major U.S. crops.
"China has been the driving force in our soybean economy," Gulke says. "They can make us or break us and that’s not good. I’d much rather see five or six China’s, so if one had a hiccup, we wouldn’t have a problem."
It was likely a small hiccup we saw this week as corn closed about 13 cents lower and soybeans closed almost 70 cents down for the week, on negative news about China’s economy. The Chinese government’s announcement last week that it intended to raise interest rates in order to curb inflation was the driving factor taking prices lower then. This week that rumor was confirmed this week as rates increased ½%.  [More]

Other than an increasing reluctance to check the markets now, how should this news be affecting my decision-making?

I would suggest some other standard to compare to other than the top of the market. The last few days I've been churning out new roadmaps for our farm and the transition to Aaron. I probably need to do this more often, or better yet to get him to check it more often because I've been meaning to be more punctual for the last few decades with little visible result.  But so many LARGE market influences such as funds, climate, and China now active in grain markets facing serious demand growth, losses and gains like we've had in the last few weeks could lead to some serious over-emoting.

I also think a little historical perspective might help our brains, as well. (This is favorite trick for old guys - "I remember back when this happened before blah, blah, blah...)  In this case there are some parallels to Japan that seem appropriate.

 I think the Japanese story has important implications for our analysis of China.  If China indeed experiences a rapid slowdown in GDP growth, the impact on the rest of the world may be far less than we expect.  The real key is the evolution of the Chinese trade surplus.  If it contracts, it will provide an expansionary boost to the rest of the world, not a contractionary one.
Of course that doesn’t mean that the world will grow quickly.  My expectation is that global demand growth over the next several years is likely to be anemic with or without China.  But it does man that a slowdown in Chinese growth might not be the disaster for the world that many believe.
Also a rapid slowdown in Chinese growth does not mean a social or political disaster domestically  It depends on how serious China is about rebalancing its economy.  If policymakers are willing to force up interest rates and wages, most of the adjustment pain will be borne by SOEs and the state sector, not by the household sector.  In that case we might see a slowdown in Chinese consumption growth, but one not nearly as severe as the slowdown in Chinese GDP growth.  Since the Chinese, like everyone else, probably measures their well-being in terms of purchasing power per capita, rather than GDP per capita, a sharp slowdown might not be nearly as painful as we assume.  [More - well worth reading]

Finally, it is good to remember it is now official that we can't predict squat about the global - or the American - economy.  Everybody does, of course, and some will seem to be right occasionally simply by random chance, but otherwise surprise will be the constant factor.

So we're fixing on accomplishing specific goals and letting others try to maximize selling price. If we can continue to solidify our land base, deploy all family assets as fully as possible, enhance our personal satisfaction with our lives, and get me into a new wood shop (and Jan into a new greenhouse) over the next 2-3 years, we're going to call it a win, regardless of whether China takes beans to $25 or not.

I didn't even know there was...

A World Map of Beer.

[More]

Remember all those wishful forecasts that began with "If every Chinese person did X"?

They're happening now.

Where to house 700 million farmers...

On relatively little arable land.  I remember a line from Fox Butterfield's "Alive in a Bitter Sea", which I read many years ago.  It opened my eyes to the Great Leap Forward and how it devastated China.

Anyhoo, the factoid was something like "in the good farmland of China, there is on average a village of 1500 every mile." I think I recall it accurately (I hope) because I have ever since imagined a town the size of Chrisman (~1000) here at my house and another at the intersections a mile each way.

Obviously much of the housing boom in China has been for farmers, and here is what they got.

Scott Sumner wonders what it means.

We normally think of the urban Chinese as the more affluent and the rural Chinese as being relatively poor.  That’s true on average, but there are far more exceptions than you’d think.  I suppose nobody’s surprised to see examples of poor migrant workers in the cities, but consider this example:

these are farmers houses that stretch for about 100 miles between Hangzhou and Shanghai. If youve seen
them in person the sheer scale of the devlopment is amazing, it basically looks like one vast urban suburb rather than
countryside. It took me over 2 hrs to get through it by train.
All the houses have steep roofs, turrets, towers and even onion domes, by the thousand. Its one of the most amazing ‘urban’
things Ive seen – seriously if anyones in Shanghai, take the train to Hangzhou and look out of your right window…
Theyre all built for free by the progressive local councils:

To see what he is talking about you need to open this link and scroll down to post#49.  Then look at the pictures.  One of them nearly blew me away.  BTW, I have doubts about the accuracy of the statement that all those houses are “built for free.”  I don’t even know what that means.  But I did the Shanghai to Hangzhou drive in 2001, and I could see the beginnings of this amazing (appalling?) landscape beginning to take shape.  As you look at the pictures toward the bottom of post #49, keep in mind you are looking at rural China.
But it gets even weirder.  If you scroll down to post #55 of the same link you will see a Jetson-style rendering of a proposed “farmers apartment” building that is nearly the size of the Empire State building—proposed for a site in rural China.  You’re probably thinking “Sure, the Chinese love those gee-wiz drawings, but how many actually get built?  If you open up this link (post #255), you’ll see that the project is already mostly built.  Question:  Is there anywhere else in the world where a 1076-foot skyscraper would be built for “farmers” and located not in a city, but in the “countryside?”
Yes, I understand that Huaxi is the richest village in China, and is hardly typical.  But I also think that there is far more wealth being accumulated in the rural parts of eastern China than many people realize.
When I used to hear about 800 million “rural Chinese” I pictured dusty little villages in western China.  I may need to re-adjust my mental images. [More]

We simply may not be able to imagine the population density in the habitable part of China. But even weirder for me is trying to imagine how they will migrate more of those people to urban centers as farming consolidates.

Maybe they will be able to keep many on tiny farms in this new housing, but I would think the inefficiency of that will win out in the end.  My guess these new houses will end up containing a lot of old retired people.

1031 in China...

With all the development in China, I'd wondered if the displaced farmers and villagers got any compensation when massive housing or business areas were constructed.

It's even better than I imagined.

This nice little suburb, it turned out, had been built in 2006. And like a lot of things in China, it was built all at once, on top of a village that already existed.
The obvious question with this sort of rapid development is what happens to the people who had the shack that sat on the land where the government wanted to put condos? The answer, at least in Dalian, was that they bought the previous inhabitants off. A conversation with some residents revealed that they didn't just get one free apartment in the new building. They got four free apartments, three of which they were now renting out. And medical coverage. And money for furnishings. And a food stipend. And -- I'm not kidding, by the way -- birthday cakes on their birthdays. Sweet deal.
If you've spent any time around local politics, you'll often hear people joke of doing this sort of thing. A massive development that a lot of people are excited about will be blocked by a handful of people who're worried that the traffic will destroy their quality of life. Frustrated reformers often muse about giving each of them a million dollars and sending them on their way. In Dalian, at least, the government is pretty much doing exactly that. [More]

OK - I'll swap 10-1 and throw in a cake...

[Update: Other experiences vary, apparently]

Meanwhile, back at the African ranch...

While we can't take our eyes off China, except maybe to glance at India, something is happening in Africa.  Something very good, I think.

[More]

The cause is anybody's guess, but China's hunt for commodities (especially metals/minerals) is a top candidate. I think we need to keep in mind that growing demand for commodities does not guarantee that demand will show up here alone, or even mostly.

 Obviously the question becomes how sustainable this boom is. Traditionally the problem for countries that are commodity-exporting their way to prosperity is two-fold. One is that your commodity exports drive up the price of your currency, which reduces the competitiveness of your industries in other tradable sectors. You become a country that sells copper (say) abroad to finance imports of all other kinds of things. Second is that while in the initial phase rising commodity prices make your country more prosperous and in the second phase continued price growth drives investment that further drives prosperity, sooner-or-later the increase in investment tends to drive the price of the commodity back down to earth and then where are you? So what you’ve normally seen is countries riding a commodity price boom-bust whipsaw and never achieving any kind of sustainable development. Will we see that again, or will China manage to keep moving up the value chain to the extent that eventually Africa and other poor places start to take its place as low-cost manufacturing hubs and so forth? [More]

Still, because we grow commodities that flow like water through the markets, demand anywhere is a good thing. And what this chart suggests is Africa could begin contributing mightily to that demand as GDP soars.