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Will China Cause a Shortage of Diamonds for the Rest Of Us?
We have previously blogged on China's emergence as a world economic power and the update is that China's economy is growing at an incredibly clip at the rate of close to 12%.
Lawrence Roulston writing today in in Resource Opportunities indicates that the biggest European economy—Germany—saw a rise in consumer confidence, buoyed by strength in exports. Volkswagen, Europe's biggest car maker, is now building two big new plants in China to keep up with Chinese consumers demand there. Other companies are also planning expansions, to meet an expected 20% growth in the Chinese auto market this year. Last year, China became the world's largest market for automobiles.
Chinese consumers are forecast to increase their buying of gold in tandem with their increasing prosperity. Already the second largest consumers of gold (after India), the Chinese are expected to further boost spending on jewelry. Investment demand for gold in China is still low, but that could also rise with growing wealth.
Some analysts suggest the expansions may lead to overcapacity in the coming years. Industry executives point out that there are now 41 cars per 1,000 Chinese residents. That compares to 500 automobiles per 1,000 population in the US. No one has any notion that China will ever come anywhere close to the US love affair with the automobile. Even getting a few percent of the rapidly growing middle class into cars will maintain a strong auto industry for many years.
Rapidly rising demand for diamonds in China is leading to forecasts of a shortage of gems in the not too distant future. Fifteen years ago, there was no diamond culture in China. Today, 40% of brides in the three biggest cities are getting diamond engagement rings. China has another 100 cities with more than a million people.
India, which now leads the world in diamond cutting and polishing, is growing concerned at Chinese efforts to secure supplies of raw diamonds as a basis for starting its own diamond cutting industry. In anticipation of growing internal demand, the Chinese government is including diamonds in its shopping list of commodities. The government is working hard to establish relationships with other nations to pave the way for Chinese corporations to gain access to a wide range of raw materials.
China has overtaken Germany to become the world's largest exporter, with 10% of global exports. The country is the second largest importer (with 8% of global imports), exceeded only by the United States. World trade is projected to grow 9.5% this year, after shrinking 12.2% last year.
What should concern us here in the USA is the fact that China holds a large amount of US Treasury IOU's. What happens to the US economy and the mounting pile of accrued debt if and when China calls in these markers?
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