wolfhounds (29.30)

What's eating China?

January 27, 2008 – Comments (2) | RELATED TICKERS: GCH , POT , FXI

I didn't mean the title to be a pun, but it Foolishly jumped out while looking at the Chineses markets tonight. Earlier today I read a yummy piece (forgive me) that the Chinese government is concerned about being able to feed it's population. It issued changes in farm subsidies that will  reduce ethanol production  for edible corn, and increased subsidies for the growth of a variety of food products. The possible effects could be far worse than the Chinese trade imbalance.

In a pre hyper-growth Asian world, food commodities acted like all others. Not enough, we'll make more, and sure enough prices eventually came into balance. But China is a growth story (and possibly other Asian countries to follow) in which the huge middle class is developing tastes for western food. And if they can't grow enough they'll import it  with consequences for prices in exporting countries. This is beyond increases in grain, proteins, and anything cow related we've already seen. How does all this affect Chinese trade, it's lifeline, if the U.S. has to absorb yet higher food prices on top of energy prices which have drained many Americans. This may not happen overnight, but I'm not thinking out loud either. We have an system which doesn't allocate resources by fiat. Capital is allocated to create the greatest return, and if that means exporting food, wallets will allocate dollars away from many other goods. With inflation caused primarily by food and energy prices the past 12 months reaching 4.1%, the future of Chinese menus in the U.S. is getting dimmer.