Current TV has just released their newest installment City on Steroids, and it should not be missed.

Shot in Chongqing, this segment is broken into three parts,

• Day 1 -Bang Bang Men (porters), rampant construction and individual home ownership (every young couples dream),
• Day 2 - life of a bang bang man, migrant appreciation day,a trip to the market
• Day 3 - a trip to Lifan’s car production facility, a look at the shadow that is Chongqing’s skyline, a trip to an English school to discuss the price of progress, and a last stop to visit Mr Rong’s apartment.. under the bridge.

For those that have only been to Beijing or Shanghai (particularly Shanghai), I think the most important things to understand are:
1) This grown is occurring in cities all over China: Chongqing, Chengdu, Xi’an, Kunming, Shantou, Nanchang, and countless others
2) There are large numbers of people in China who are willing to sacrifice everything to live under a bridge to eek out what they feel is a better life for themselves and their family
3) The environmental costs of the torrid pace are tremendous, and eventually Mother Nature is going to ask for the check.

As a quick follow up to a post I made last week, I am becoming increasingly concerned about the energy situation in China. It is something I have been thinking about for quite a while, and was unfortunately proven right a few months ago. more importantly though, I have been seeing a number of signs (Shanghai commercial lights off @ night) and hearing that there are still rolling power outages in what are typically areas with enough energy.

Then, Forbes last week reported that More than 70 pct of China power firms making losses,

the China Electricity Council said that 40 pct of China’s 4,773 power firms made losses in the first two months of the year, and that profits were down across the board as a result of record high coal prices, fixed tariffs and the freak weather conditions that struck southern China over the period.

and, today the People’s Daily China’s power coal reserve falls to 12 days amid rising prices

The nation’s entire coal reserves slumped to 46.69 million tons as of April 20, down 12 percent from 53 million tons in the early March, said Wang at a news conference on Tuesday.

The national stockpile was only sufficient for 12 days of consumption, three days fewer than the March record. Coal inventories for plants in Anhui, Chongqing and Hebei were only enough for less than a week, he said

But, more than these stories, where I would like readers to focus, is last week’s Reuters article China to update rail lines to boost coal supply where some real insights into just how difficult the problem will be short/ medium term will be (I have added the numbers):

1. Some 19 lines linking top coal areas in the north to ports in the east would be updated or rebuilt, increasing transport volume to 1.7 billion tonnes, said Dong Yan at the Institute of Comprehensive Transportation of National Development and Reform Commission.

2. Some 200 million tonnes of coal was taken by truck each year from producers in places such as Shanxi, Inner Mongolia and Shaanxi to ports in the north and east

3. China’s coal consumption would rise to 3-3.1 billion tonnes in 2010, and to up to 3.3-3.7 billion tonnes in 2015, which compared with 2.54 billion tonnes in 2007, driven by strong demand from power plants, Dong said.

Add all this together…

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Last week, we saw the best turnout yet with 8 people representing VC, law, academia, IT, and finance for our 3 hour discussion on China’s water problems.

Considered a boring topic by many, it is probably going to be one of China’s (dare I say the worlds) biggest problems going forward.. and as such, importance trumped interest.

What is interesting about the issue, is that it is complex. There are a lot of things occurring in China that we discussed that have a significant impact on China’s water supply, and it is going to take consumer awareness, changing habits, technologies, and a little bit of luck to avert major problems.

Below are some of the nearly 4 pages of notes I took from the event, and I hope you will chime in with your thoughts on the topic as well. There is a lot at risk here, and with over 1500 readers a day I am hoping that we can get some dialogue going on what every one of use should recognize as a very important issue.

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Yesterday, my post Senior Economists: China to Surpass by 2025 - Me: HOW? looked at the fact that China would need to overcome some large raw material barriers to maintain a level of growth that would propel the economy past the U.S.’s.

With oil going about 105 USD per barrel this week though, I think we have found a point on the curve where China’s sustainability see a barrier… as at this level, where petro companies make more money by exporting their gas rather than selling it domestically (I think)

My proof? 3 days I ago I began seeing lines of motorcycles in my neighborhood waiting for gas… and today while riding out to a migrant school, it was trucks. 20-30 deep… and,when asked, the bus driver was telling us that the lines were becoming worse and worse

Being at the front of the bus, I asked the driver about the current rations, and he told me that the current rations allow for each driver to buy a maximum of 200RBM of gas, and that if they need more they have to go to another station.

Now, I have done absolutely no research to understand how widespread this is, however I am going to make a guess that this is a phenomenon that only gets worse in the hinterlands.

Where this is important is that, as I discussed in China’s Economy is Running Out of Gas… Literally, transportation costs and delays are increasing (pay attention JIT exporters), price hikes are coming, and this issue will get worse as more cars hit the road.

i.e. the curve is no longer linear… it is becoming exponential (as the graph shows)

What do you think could be done? Petro China thinks a price hike is in order, but what about reducing the number of cars on the road? Will the strategic oil reserve help?

Update: Here is a interesting article on Petro China’s recent earnings release, where the opening paragraph is:

PetroChina Ltd. said Wednesday that profits rose by just 2.3 percent in 2007 as government controls blocked it from passing on record-high crude costs to consumers, though a Chinese auto-buying boom drove a 21 percent jump in total sales.

So, my last question is what would petro prices move to if they were priced to market?

I am a big believer in China.  BIG…. but, even I have my limits.

Last week while attending a discussion at Three on the Bund, Economist Jeffrey Sachs said that China’s GDP would pass the United States by 2030.  According to him, that would mean that China (currently about the same size as Germay) would need to grow 4-6 times its current size.

Then, while following a paper trail of articles, I bumped into this PWC press release where  John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP says:

Our latest projections suggest that China could overtake the US in around 2025 to become the world’s largest economy and will continue to grow to around 130% of the size of the US by 2050.

At the discussion, I asked Professor Sachs (A man whose work in poverty alleviation and country building is amazing), just how this would be possible when the country is already running out of coal, water, petro… is trying to control inflation… is having a hard time with depleting agricultural land…

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For the last few months, I have been bringing some of China’s finest together to discuss topics like inflation and energy. The goal is simple, and the results have been very interesting.

Where we are having a hard time really is in keeping up. Our January discussion was on inflation, just as the energy law was becoming the topic of discussion, and we had the energy discussion just after the snow storm that knocked out power to 17 provinces.

So, it is with that in mind, that I am bringing everyone together again to discuss China’s water situation. It is a situation that has been highlighted in a number of articles lately. China is expected to tap resources by 2020, droughts have impacted the South, the Yangtze is at a 150 year low, and recent reports of red algae blooms have rounded out the coverage.

There will be a lot to cover, and I am looking forward to developing this discussion as there are a lot of challenges and a lot of opportunities that will come out of China’s water usage.

So, with that in mind, I would like to put several of the key questions we will be asking out to readers to see what you think… and as always, those that participate will be rewarded with notes from the event.

1) How serious is the issue of water in China?
2) What are the threats to China’s water supply?
3) Will power will the new environment “super” ministry have to protect water sources of China?
4) What is the level of public awareness in China of water pollution in China?
5) What has been the impact on the consumer of polluted water?
6) Is it possible for the Wuxi algae blooms to return? What would be the impact of algae blooms on the Yangtze?
7) What technologies are available/ needed to purify, create, or reclaim water in China?

With snow storms reeking havoc on China’s power grids a few week back, it was clear that we needed to hold a session on energy, and as I mentioned in my post last week… we had a lot to discuss.

For me, this was a situation that was inevitable, and if you were following the news over the last 18 months it would have been pretty easy to see that energy was becoming a scarce resources.

So, without further ado, here are some of the highlights from the event. There were 5 people involved in this evening from industry, finance, law, and policy, and after 3 hours I think we were able to cover a lot of ground.

Feel free to post your comments on the below. they are cut down from the complete notes, but let us know how you see some of the issues. Energy is an issue that we are all going to have to keep a close eye on as it reaches into everything. Just today a few really interesting news stories (here, here, and here) were released indicating that steps are being taken in the right direction.. but it is clear that the margin for error has decreased and that more than ever it is important for progress to be made.

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