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China Set to Pass U.S. as Global Leader

The Day The Communists Won

Written by Nick Hodge
Posted April 27, 2011

Well that's it. It's been a good run, but after 235 years of dominant reign, the U.S. is being forced into global superpower retirement.

Maybe we'll at least get a nice watch for our service.

Sarcasm aside, our fate has been sealed.

The International Monetary Fund (IMF) is out with its World Economic Outlook. And by 2016, China's economy will be $200 billion larger than ours.

Make sure you write every public representative you've had for the past 30 years and tell them thanks for squandering the American dream...

Decisions, Decisions

We can condemn the Chinese all we want...

We can mock their population control. We can abhor their Internet censorship. We can question their government's authoritative power. We can even require no MSG...

But at the end of the day, the Chinese can still employ one of the best sporting comebacks ever, and simply point to the scoreboard.

They own our debt. They manufacture our goods. And soon, they'll take our place as the world's dominant economic superpower.

China is Bill Gates and the United States are the jocks who teased him in high school.

By the time we realize our glamorous high school years (the 1980s) can't go on forever (though we'll constantly recall those days fondly), our future success will have been already cut short.

At some point, you have to accept the fact that China's made some successful decisions, regardless of how you feel about them.

From the rise of communism and the seizing of land in 1949 to the nationalization of agriculture and education, and further to their choice of a planned economy over our market economy system... China's success today is the sum total of the decisions it's made hereto.

And now that they're about to blow by us, we may want to start taking note of their approach.

We can start with energy.

First to Market

For all the talk about climate change and renewable energy initiatives harming the economy, they don't seem to be fazing China.

It was the first developing country to offer a national carbon reduction plan. It is the world's largest producer of renewable energy, with 152 GW installed. And it's also the world's largest producer of renewable energy components, like wind turbines and solar panels.

And all that has been "so bad" for their economy, it's about to overtake ours while we stand around scratching our heads.

But with its massive population and industrial sector, Chinese imports of coal and oil are climbing to new highs. And with new shale gas technologies becoming available, China isn't waiting to pounce — just as it didn't wait to embrace renewables or buy up oil resources around the globe.

If You Got It, Flaunt It

Consider the first two sentences of a recent Reuters Special Report on China's shale power:

China has spent tens of billions of dollars buying into energy resources from Africa to Latin America to slake the unquenched thirst for fuel from its growing industry and burgeoning cities.

But China may have more energy riches under its own soil than policy makers in the world's second-largest economy ever dared imagine.

A U.S. Energy Information Agency report last month said China has 36.1 trillion cubic meters (tcm) of shale gas reserves — the only country with more than our 24.4 tcm.

China is already the world's biggest burner of coal, the second-largest oil importer, and will soon overtake us as the largest overall energy consumer.

So it's wasting no time.

The Ministry of Land and Resources (MLR) is set to start auctioning off shale gas blocks any day now.

A deputy director at the MLR said “shale gas should take a significant position in China's energy mix” by the end of the decade.

The China National Petroleum Corporation predicts Chinese gas production will triple by 2030...

And thanks to a shale gas cooperation act signed by Obama in late 2009, there are some interesting ways to play it.


Shale Tales

CNOOC (NYSE: CEO) and Chesapeake (NYSE: CHK) announced two deals in the past few months that would give the Chinese company experience by drilling in Texas, Wyoming, and Colorado.

PetroChina (NYSE: PTR) paid $5.4 billion earlier this year for a share of Calgary-based Encana Corp's (NYSE: ECA) shale resources.

Chinese firms will take that experience back to China to exploit the massive resources there.

Of course, China has failed to reciprocate — all but refusing to let North American companies in on their newfound shale wealth.

On a geopolitical level, who knows what will happen...

Giddy with confidence (or greed), we're already turning import facilities into export terminals, once again throwing energy security to the wind.

But even if we let China win yet another round of economic chess, the companies extracting the gas are still going to make a killing.

In China, you can check out the companies listed above as well as China Gas Holdings, ENN Energy, and Towngas China. (And you can check out the Reuters report here.)

For North America, we've just finished a new report on the resource — and how landowners and shareholders alike are using to it to increase their prosperity.

Call it like you see it,

Nick Hodge

Nick Hodge
Editor, Energy and Capital


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