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Aug 2004 - China

Some things are relative in China

We have come across comments that Guangxi (where Michelago’s Jinya project lies) and Guizhou (where Sino Gold’s Jinfeng Project is located) are two of the poorest provinces in China.

However, the reality is that they are “poor” relative to some of the other more developed provinces in China. A booklet contained the following details about Guangxi with its population of about 48 million. Namely that it is steeped in history dating back over 1600 years. It mines about 89 minerals, and has some of the largest base metal mines and complexes in China. Some 21million of its people were below the poverty line in 1978, but that had fallen to only 1.7m in 1999.

Guangxi has agriculture, mineral resource wealth and ports. Guangxi’s GDP in 1999 was 195.3bn Rmb (or almost US$24bn – yes, about 5 years’ ago it was about twenty-four billion US dollars!), which in per capita terms was then about half that of the developed provinces and hence the “poor” province classification. Guangxi’s GDP had risen by 7.7% from 1998 to 1999 and that was apparently up 4-fold since the level it was at in 1980, being 5 years ahead of its planned growth schedule. It should be noted that all of these increases are before the current growth spurt.

On ERA’s most recent visit to China in July 2004, looking at Michelago’s and Berkeley Resources’ projects, we stayed at Yantai. Yantai is on the northern coast of the Jiaodong Peninsular in Shandong Province, and is described as a fishing village or small “holiday” town. On arrival from the airport there appeared to be little transport and about 5 cabs whose drivers did not understand English. Again relativity springs to mind since while Yantai does not appear on most of the maps of China that we looked at, its population (in the last statistics) was over 9 million (or something in the vicinity of London).

We also noticed a few changes in the past 10 months since we were in Shandong and Guangxi. Whereas last time Qingdao had perhaps 4 or 5 “crane farms” (or clusters of 10 to 30 cranes or so building apartment blocks) this time there appeared to be about 15 to 20 “crane farms”. The building has spread out into the towns in the Provinces as illustrated to some degree in Figure 1 in Nanning in Guangxi….and each of those apartments requires copper wiring, nickel for…. It was 10 months since last September 2003 that we visited the small town of Fengshan (near Jinya), and the roads have been fixed, the sidewalks brick-paved, the black “hole” down the street away from the government “hotel” now contains lit shops, and at the end there is a promenade alongside the river.

We saw a town being built simultaneously on both sides of the road in Guangxi last September. That town has continued to expand and is now a city with buildings approaching skyscraper proportions. The movement of people within China has reputedly slowed …to about 300,000 per day, which apparently requires a city the size of Melbourne to be completed every month. The general comment made is that there are power shortages, but that has been allowed for with significant power stations in various stages of construction throughout China and expected to alleviate the situation by 2006. By that time the new road freeway network that appears to be in progress in every Province we have visited so far, should have been completed enabling transportation using road-trains.

And the middle class is becoming wealthier. The first BMW 7 series was apparently sold for US$400,000 and reputedly more than 50 per month are being sold, now that the price is apparently closer to US$200,000 each. We visited a gold jewellery emporium in Zhaoyuan (the gold “capital” of Shandong) where pyrite specimens were actually being sold since most ores in Shandong province do not contain visible gold, instead it is in or associated with the pyrite.

As wealth levels rise gold demand should benefit, and the new cars being sold all contain catalytic converters with the petrol stations selling lead-free fuel. There are statistics showing that growth in China is slowing, but again it is relative. As was described in a paper at the recent Diggers and Dealers Conference in Kalgoorlie, it is more a case of China “having taken its foot of the accelerator, rather than applying the brakes”.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in a number of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. Constructing New Apartment Complexes in Nanning (Guangxi Province)GDNaug04

  • Written by: Keith Goode
  • Sunday, 01 August 2004