Unlike the free market economy in the United States, in China companies that develop raw materials are state owned. In a bizarre twist, China is able to stabilize raw material prices more quickly than other developed countries. So where the US Treasury moved to loan money to the auto industry, the Chinese government can step in directly to stabilize prices.
As an example let's look at China's aluminum producers. Back in October Chalco, China's largest aluminum producer, cut production by 720,000 tons or 18%. At that time the price of aluminum was about $2000 US dollars per ton. Now just two months later aluminum supplies are still increasing and prices are still falling. In an effort to "hold the line" and halt the slide in prices, China'a State Reserve Bureau has stepped in and bought 300,000 tons at about $1800 US dollars per ton.
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Reader Comments (Page 1 of 1)
12-29-2008 @ 2:56PM
BHarrison said...
Well, since the Chinese are able to subsidize their basic industries with the American dollars that they have earned via the unbalanced trade or interests that they earn on "loans" to the USA, they can well afford to subsidize their industries until recovery sets in . . . they have well over a TRILLION DOLLARS in "surplus U.S. dollars" due to the balance of trade. That should carry them for quite a while.