China’s Guy Lafleur Problem: Got ‘Em, Got ‘Em, Got ‘Em, Got ‘Em

A long time ago growing up in Canada friends of mine used to collect and trade hockey cards. They would bring them to school in fat bundles held together by over-stretched elastics.

image_625 Before school, during recess, and at lunch they would stand together in little groups, thumbing through the cards and trying to do deals: “Got ‘Em, Got ‘Em, Got ‘Em, Got ‘Em, Need ‘em”. And on that sound of “Need ‘em,” – a Guy Lafleur card! – you might see a swap, as one person had a card that other one didn’t.

More often than not, however, there was no trade. All of the most active traders had massive decks of the same hockey cards — the cards that were rare were rare — so you’d be unlikely to swap one of your rare cards for someone else’s rare cards. Mostly the exercise ended up being a display of excess printing capacity, with everyone having oodles of cards, most of which they just thumbed through and couldn’t actually trade. Before the whole market fell apart people were coming to school weighed down with shoe boxes of untradable hockey cards.

I got to thinking about Guy Lafleur, hockey cards and trade this morning in reading a piece about China’s excess capacity problems. Check this excerpt:

Based on the NDRC’s figures, [China’s] 2008 capacity utilization rates were just 76% for steel, 75% for cement, 73% for aluminum, 88% for flat glass, 40% for methanol, and 20% for poly-crystalline silicon (a key raw material for solar cells). The current project pipeline also implies less than 50% utilization for wind-power equipment manufacturers in 2010.

…The problem is that much of the so-called “blind” and “redundant” investment that Beijing would like to eliminate has the strong support of local governments, whose primary concern is with generating GDP growth in their jurisdictions, regardless of whether the means of achieving it make any economic sense.

Consider cement production, where, according to the China Cement Association, 38% of capacity consists of “shaft” kilns. These have been obsolete in most of the rest of the world for over a century, and accounted for less than 3% of production even in 1957, when most of China’s cement plants were imports from Eastern Europe. Nowadays, however, shaft kilns are a favorite of local governments because they can be built cheaply and quickly and generate growth and employment.

Got ‘em, got ‘em, got ‘em, got ‘em, ad infinitum.