Trading is always short-term in nature. Even if you are swing trading, positions are rarely carried for more than a few weeks, maybe a month or two, which may seem like a very long time when you are watching and waiting for a move but is, in the grand scheme of things, merely a blink of an eye. That doesn’t mean, though, that long-term factors aren’t important. In fact, whether consciously or not, every decision a trader makes is based to some extent on a long-term view that inevitably comes from following news and data relevant to the market.
That is why I occasionally take a step back from the intraday and consider long-term trends and influences. Doing that has recently led me to a somewhat scary, if not completely original conclusion. China’s influence around the globe has been growing steadily for twenty years or so, but the rate of growth has really ratcheted up over the last five or six years and we are not far from where it is they, not the US, that is seen as the dominant global power. That is particularly noticeable when it comes to energy, where it could even be argued that the shift has already taken place.
China has taken the lead in developing several alternative energy sources, most notably solar power, where they are by far the world’s largest producer of photovoltaic cells, controlling around three-quarters of the world’s total output. But they also understand something that some advocates of green energy here in the…
Trading is always short-term in nature. Even if you are swing trading, positions are rarely carried for more than a few weeks, maybe a month or two, which may seem like a very long time when you are watching and waiting for a move but is, in the grand scheme of things, merely a blink of an eye. That doesn’t mean, though, that long-term factors aren’t important. In fact, whether consciously or not, every decision a trader makes is based to some extent on a long-term view that inevitably comes from following news and data relevant to the market.
That is why I occasionally take a step back from the intraday and consider long-term trends and influences. Doing that has recently led me to a somewhat scary, if not completely original conclusion. China’s influence around the globe has been growing steadily for twenty years or so, but the rate of growth has really ratcheted up over the last five or six years and we are not far from where it is they, not the US, that is seen as the dominant global power. That is particularly noticeable when it comes to energy, where it could even be argued that the shift has already taken place.
China has taken the lead in developing several alternative energy sources, most notably solar power, where they are by far the world’s largest producer of photovoltaic cells, controlling around three-quarters of the world’s total output. But they also understand something that some advocates of green energy here in the US often seem not to…the world will still need fossil fuels for decades to come, so fossil fuel output is still a geopolitical weapon. China is second behind the US as a consumer of oil but, despite their capacity for solar generation and a push towards EVs, their consumption is still growing rapidly and they have limited proven reserves of oil. So, they have gone out of their way to cement trading relationships and secure oil supplies. That secures their future, but it also gives them power over others.
The shift away from the US and towards China is not about who is in the White House, nor is it to do with how countries feel about America. I’m sure China loves the fact that most who comment on it here try to lay blame at the door of their political opponents or claim that it is something to do with “hating America” or whatever. The internal bickering is a major distraction, but neither argument actually holds up under scrutiny. The acceleration of Chinese influence around the world gained pace when Donald Trump was in the White House and has continued since the last election. Meanwhile, the recent decision of Saudi Arabia, traditionally an ally of America in the Middle East, to join the Shanghai Cooperation Organization taken alongside the somewhat less surprising decision of the Iraqis to favor Chinese and Russian companies over their American competitors, points to the fact that traditional alliances are shifting, and shifting rapidly. This is not about politics, religion, or past behavior; it is simply about power.
None of this, of course, is by accident. China thinks and acts long-term, and the push does cause concern as to what the long-term goal is. With Russia, we saw that economic advancement and a situation where Europe became dependent on Russian gas preceded the invasion of Ukraine. There is a school of thought that China’s real goal is to facilitate a similar invasion, in their case, of the island of Taiwan. If so and given the bipartisan perception in the US of the importance of that country, economic power and influence could be the least of our problems if that is the case.
Still, for now we cannot know if that is the real aim. We only know that China is using energy as a means to gain a geopolitical advantage, whatever they eventually do with it. So, how does that impact traders and investors?
Well, curiously in some ways, it isn’t a bad thing for the sector, at least over the next year or two. As we have seen in the past with OPEC, concentrated control of oil reserves results in pricing power, and that usually means higher prices that benefit the industry as a whole. Should the Chinese decide that their newfound power and influence make an invasion of Taiwan possible, however, that will change.
This is where stepping back and taking stock of a long-term view pays off. It is easy to see the increasing dominance of China as a right now problem, but a rational analysis of the situation tells investors that while there may be legitimate reasons around global stability to track the aggressive moves of the country in global energy markets, they will not have a negative impact for a while, if at all. Given the strong relationships now in place, it is unlikely that the OPEC+ decision to cut output was made without consultation with China, and the fact that those cuts were implemented indicates that they are not currently opposed to moves that push prices higher. So, for now, as worrying as it might be in a few years, Chinese influence is one problem that traders and investors don’t have to factor into calculations.
