Many thanks to Matt at bizCult for his review of the article, Investing In The Dragon’s Belly, that I wrote for the November edition of AmCham-China’s China Brief.  In his post, Jack is Back to Tell Us Why We Need Shanxi Now, Matt summarizes the case I made to AmCham’s readers as to why they should consider China’s inner provinces before heading off to what appear to be greener manufacturing pastures in other parts of Asia.  

Of ASIMCO’s 17 factories in China, many are in small cities in provinces like Shanxi, Anhui, Hubei, Hunan, Sichuan and Jiangsu—cities that most Westerners are unlikely to have visited on their trips through China. In the AmCham article, I review our experience operating in these out of the way places over these past 15 years. By and large, those experiences have been quite positive. That’s why when my friends at AmCham asked if I would write an article on the subject, I had no problem doing so and recommending an inner province strategy to my American colleagues.  

With fuel prices higher than ever, energy policy has become one of the key issues in the U.S. presidential campaign. Although it has taken a backseat lately to the economy as the country struggles to deal with the meltdown on Wall Street, everyone realizes that new solutions — and alternatives to the current sources of energy supply — are needed to meet America’s needs over the long term. So much so that John McCain, the Republican presidential candidate, proposed that a $300 million prize be given for new technology that would be 30% cheaper than current batteries for passenger cars and have “the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.”

Well, the U.S. won’t have to spend that money after all and can apply it instead to the economic bailout package. Warren Buffet has beaten everyone to the punch by investing $230 million in what he considers to be the most promising battery technology in the world. Who’s the lucky winner? A whiz kid from Silicon Valley? An automotive engineer from Detroit? Or perhaps an engineer trained at Toyota, the company that pioneered the development of hybrid technology? Remarkably, it’s none of the above. The prize goes to a Chinese company that is a relatively recent entry to the battery business, and an even more recent entry to the automotive industry.

Warren Buffet announced Monday that he had agreed to pay 1.8 billion Hong Kong Dollars (about $230 million) for a 9.89 percent stake in BYD, a Chinese battery manufacturer that plans to sell electric cars in the United States by 2010.  Established in 1995 and based in Shenzhen, BYD is one of the world’s largest makers of rechargeable batteries for cellphones and other uses. The company’s fast-growing auto-making unit, which it only established in 2005, makes compact and subcompact cars for the Chinese market and now accounts for nearly a third of the company’s revenue. In the first half of 2008, BYD sold 72,357 gasoline cars in China, a 94 percent increase from the year before. The company plans to offer its first fully electric-powered car to Chinese customers in June 2009.

Buffet’s investment was made through MidAmerican Energy Holdings Company, an 87.4 percent-owned subsidiary of Berkshire Hathaway that is a global provider of energy services. David Sokol, the chairman of MidAmerican, said that the company wanted to address climate change and considered electric cars as a way to do so. “This is a technology that can really be a game changer if we’re serious about reducing” emissions of carbon dioxide, the main gas associated with manmade global warming, Mr. Sokol said.

In my recent interview with Sina.com, I stressed that the development of new products and new technologies would be the future trend in China. As the China market grows larger and develops its own unique set of requirements, products and technologies that have been developed elsewhere for another set of consumers may or may not have applications in China. Of all the countries in the world, for example, China has the greatest vested interest in developing vehicles that are more affordable, more fuel efficient and more environmentally friendly. The China economy needs to grow larger so that it can provide the opportunity for a better life to the 900 million Chinese who still live in the countryside. The more China grows, however, the greater the need for transportation. The more buses, trucks and cars on China’s roads, the greater the demand for fuel and the greater the stress on the environment. If China can’t provide more transportation, its economy can’t grow. It’s that simple. For China, therefore, developing vehicles and other forms of transportation that are more affordable, more fuel efficient and more environmentally friendly is a matter of economic life and death.

In this context, it should not be too surprising that the next advances in automotive technology come from China. Warren Buffet’s investment in BYD is yet one more sign that Chinese companies are moving upward technologically and gaining world class status. The executives at MidAmerican believe that BYD is at the cutting edge of battery technology and were impressed by BYD’s ability to produce electric cars that can be 80 percent recharged in 15 minutes and have a range of almost 190 miles on a single charge. GM’s Chevrolet Volt, by way of comparison, has a battery range of just 40 miles on a full charge.

In addition to their belief that plug-in electric cars are well-suited for the U.S. market because the country already has the infrastructure to recharge almost anywhere, Berkshire Hathaway and Mid American want to tap into China’s vast engineering talent. Investing in BYD, which has 11,000 engineers and technicians among its 130,000 employees, provides a way of doing so.

China’s Ministry of Finance and National Tax Bureau has announced changes to the consumption tax on passenger vehicles. Effective September 1, the consumption tax on cars with engine displacements below 1.0 liter will be cut from 3.0 percent to 1.0 percent, and the tax on cars with 3.0 liter to 4.0 liter engines will be increased by 10 percentage points from 15 percent to 25 percent.

The consumption tax doubles from 20 percent to 40 percent for cars with engines above 4.0 liters. For passenger cars with engines having displacements from 1.0 liter to 3.0 liters, the consumption tax currently ranges from 3 percent to 12 percent and remains unchanged.

This latest government initiative is obviously an effort to discourage purchases of gas-guzzling 3.0 liter plus engines and spur demand for cars below 1.0 liter. As such, it is a step in the right direction. However, passenger car models which fall within the size ranges most heavily impacted by the new tax changes account for a relatively small part of car sales currently.

During the first half of 2008, approximately 3.0 million passenger cars were sold. Of this amount, only 139,000 cars (4.6 percent of the total market) with engines having engine displacements below 1.0 liter, and just under 21,000 passenger cars (0.7 percent of the total market) with engine displacements above 3.0 liters, were sold. In other words, cars with engine displacements between 1.0 and 3.0 liters account for 96 percent of sales, but are unaffected by the new tax changes.

As restructured, consumption taxes on autos now range from 1 percent to 40 percent in China, depending upon size of engine. Which companies can expect to benefit from this tax change? The most likely beneficiaries would seem to be the car makers that currently have products in the small car segment. As the China market for passenger cars broadens, and consumers with lower incomes join the population of car owners, this segment can theoretically be expected to grow. Of the 139,000 cars sold in the first half with engine displacements below 1.0 liter, the Xiali, QQ, Spark and the Alto account for over 95 percent. The Spark is made by SGM Wuling, a General Motors joint venture, and the Alto is made by ChangAn Suzuki. The Xiali and QQ are made by Tianjin Auto and Chery, respectively, both local car companies.

In actual practice, though, the market for small cars has not grown in China, despite the theoretical arguments as to why it should, and the new tax changes are unlikely to change this consumption pattern. It seems that Chinese consumers, once they reach an income level where they can afford a car, would prefer to pay more for a bigger car with more features that also provides more “face.” This is the same conclusion we came to when we analyzed the $2,000 Nano that Tata Motors of India has developed. The reason that Chinese car companies have not developed models at such a low price level is that Chinese consumers simply don’t want small cars with bare bones features.

The conclusion, unfortunately, is that the new consumption tax changes sound great on the surface, but are unlikely to have much impact. If the choice is between a small car with an engine below 1.0 liter and the consumption tax is 1.0 percent, and a bigger car with a 1.5 to 2.0 liter engine that has more features, but where the consumption tax is 5 percent, the difference in tax of four percentage points is unlikely to be large enough to change purchasing habits. For the consumer who has enough money to buy a large gas guzzler, an increase in tax of 15 to 20 percentage points is unlikely to make much of a difference. Moreover, even if the tax increases cause some of these consumers to switch to slightly smaller cars, there aren’t enough purchases in this category to make much of a difference.

There is only one renewable energy source capable of providing the power this planet needs on a scale that will meaningfully reduce CO₂ emissions over the coming century: Solar power.

To many, this statement may seem a bit out-of-step with current market trends. The current rage is of course wind power. Companies across the globe have proven that wind turbines can deliver energy at a cost competitive to fossil fuels, providing a nice supplement of green energy to the power grid.

But here’s the problem with wind power: Current global energy consumption is about 15 terawatts (TW) annually and growing. But scientists estimate that the maximum practical electrical generation potential of wind for the entire planet is just 2-4 TW. Moreover—at 1.5 megawatts per windmill—you would need a whole lot of windmills to get anywhere close to that amount of capacity.

To put it in perspective, to meet just one fifth of our current global energy demand, we would literally need to have turbines covering 27% of the planet’s land area. If you think about that for a second, it’s actually quite a frightening concept. No matter where you went, you would see windmills, transforming them into a serious eye sore. So, windmills are great, but they will always be a secondary source of our planet’s energy needs.

All other renewables—hydroelectric, geothermal, ocean (tides), biomass—suffer similar constraints, with the exception of solar. Our planet receives 1.2×10⁵ TW of solar energy annually (an astronomical figure). Practically, we can only use about 600 TW of it, but that is still 40 times global energy consumption—plenty. Moreover, we wouldn’t have to cover the entire planet with solar panels to get it.

The staggering amount solar energy the earth receives makes it too compelling an opportunity to ignore; over the next century someone is going to tap into solar in a big way, it’s just a matter of who and when.

Spotting this trend, the geniuses at Goldman Sachs have started buying up as much of sunny Southern California as they can get their hands on.

But while the value of California desert real-estate has already skyrocketed from USD 500 per acre to upwards of USD 10,000 per acre, the Tibetan Plateau—which combines high altitude and sunny skies—is a relatively untapped wilderness for solar prospectors.

Moreover, China is already an epicenter for solar technology. It is the largest consumer of solar power, with solar water heaters common across the country, and it is home to some of the largest global solar players, including famed Suntech. Because the industry is relatively immature, there will be many technological developments, new patents and acquisitions over the coming decade, and much of that activity will probably occur in China.

Goldman isn’t sitting back in China either; yesterday it was reported that Goldman has taken a major position in Himin Solar Energy Group, one of China’s largest solar players. Clearly the investment bank is betting on solar, but with so much sustainable energy out there, other people should take note and start getting a piece of the multi-trillion dollar pie.

The last few days in Beijing have been hot, muggy and grey—not great news for the upcoming Olympic Games. Also, the elimination of one-half of the cars on the streets of Beijing through the odd/even license plate system has not reduced traffic as much as one might think or hope. For one thing, one lane on most major streets and roads in Beijing is now being reserved for official “Olympic” traffic, making one-third of each of the city’s major roads off-limits to regular folk. For another, one-half of 3.3 million cars is still a lot of cars.

Therefore, it came as no surprise to read that Beijing may take even more drastic measures if the skies don’t clear soon. More vehicles could go off the roads and all construction sites and some more factories in Beijing and its neighboring areas could be closed. As part of an emergency plan now being drawn up, up to 90 percent of private vehicles may be taken off the streets during the Games. Only vehicles whose license plate ends with the last digit of the date would be allowed to hit the road if the plan is implemented.

Oh well–time to take the bicycle out of the closet.

Long after the last athlete leaves Beijing, the legacy of the 2008 Olympics will be seen for many years. Terminal 3, the airport train, new subways, roads and stadium venues, a refurbished Forbidden City and countless landscaping projects are all part of the $40 billion makeover that Beijing is receiving in preparation for August. Most, if not all, of these projects would have been done anyway as part of Beijing’s ongoing development. The effect of the Olympics has been to pull them forward in time. When my oldest daughter told me several years ago that she wanted to have a wedding reception at our farm in New Jersey, her upcoming marriage had the same effect on me. All of those projects on my “to do” list immediately became high priorities that now had a hard deadline.

Apart from the physical infrastructure, though, the most lasting legacy of the 2008 Olympics may be a China which has at least begun to walk down the long road to becoming “greener.” I don’t want to overstate the case, because anyone who has traveled here can easily see that cleaning up the environment is one of the country’s biggest challenges. However, it is increasingly clear that environmental issues are coming front and center with business leaders and government officials alike. Whereas the word “environment” had never been part of any discussions I had during my earlier days in China, it comes up in almost every one today.

Evidence of an emphasis on going green is growing. Several major Chinese companies were forced to delay initial public offerings last year to comply with environmental rules. Ten domestic IPO’s—including one by China Coal Energy Co., China’s second largest coal producer by output—were held back in the second half of 2007, after the government began vetting such deals for environmental factors. Environmental issues are now taken into consideration in the annual evaluation of local government officials. Banks are restricting loans to companies that aren’t dealing properly with the environment.

It’s also no accident that Chang’an Auto Corp, China’s fourth largest automaker, has developed a hybrid that will be mass-marketed this year. Or that Chery, China’s largest local car maker, has had an R&D team of 100 engineers working on hybrid projects for the past seven years. Chery is now testing a hybrid model in the Wuhan taxi market and expects to hit the market in the second half of this year. Even the newcomers are getting into the act.  BYD, a cellphone battery company that began developing an auto business in 2005, displayed a plug-in hybrid model at the Detroit Auto Show that it said will be available later in 2008.

I believe that the mindset in China regarding the environment began to change when it was announced seven years ago that Beijing would host the 2008 Olympics. (That might explain why companies like Chery began working on hybrid projects in that timeframe.) At once, the prospect of millions of new visitors coming to China for the first time, as well as daily TV broadcasts that are part and parcel of such a large, global event, made it painfully obvious that environmental conditions in Beijing and China would be brought into sharp focus in 2008. I imagine that the worst nightmare of every Beijing official is to have NBC open its broadcast every night with a picture of a grey, smoggy Beijing, followed by a five-minute discussion about the sad state of China’s air quality.

To prevent that from happening, a number of temporary measures will be taken. Factories in and around Beijing will be closed for business ahead of the games; construction activity will stop well before the start of the Olympics, and at least one-half of the vehicles will be taken off Beijing’s streets in August. We are hearing that transportation may begin to be affected as early as this June, and I wouldn’t be surprised if curbs on the use of autos are even more severe than the odd/even system that has been announced. We have two factories near the Fourth Ring Road (neither of which creates pollution) and are being told that transportation in and out of those factories will be nearly impossible during the period of the games.

In addition to these temporary measures, China is taking even more drastic steps that will have a longer term impact on a large part of China. As reported in the Wall Street Journal:

Six provinces and municipalities—Hebei, Inner Mongolia, Shandong, Shanxi, Tianjin and Beijing—have already started shutting down polluting factories and curbing power-plant production in an ambitious attempt to cut down on air pollution. Collectively, these provinces represent an area larger than France, Germany and Italy combined, but pollutants from factories far from Beijing are believed to be partially responsible for the capital’s often smoggy air.

The worst polluting factories will not only be closed during the Games, but will be shut down for good. While these factories are already in violation of China’s environmental standards, it has been difficult to overcome the strong vested interests of local officials who have every incentive to keep them open. We know this from personal experience, because we happen to have a factory in the area discussed that, unfortunately, has been dealing with a particularly dirty neighbor. A nearby steel factory spews out clouds of orange smoke that make it nearly impossible for our workers to breathe when it is running. Repeated efforts to convince the local officials to force the factory to clean up its act have fallen on deaf ears.

If the pressure to clean up the air in Beijing for the Olympics provides the extra push needed to close or clean up factories like this in a large part of China, the impact will be positive and long term, and the Olympic legacy may be a greener China.

It didn’t take long for the 65 percent hike in iron ore prices by Cia Vale do Rio Doce (CVRD) to work its way into the Chinese economy. Last week, Baosteel, China’s largest steel producer and the company that negotiated the new iron ore supply agreement with the Brazilian producer on behalf of China’s steelmakers, raised prices by up to 20 percent, significantly increasing manufacturing costs for companies making everything from appliances to cars in the process. The sell recommendations went out immediately, as stock market analysts concluded that China’s manufacturers would not be able to pass along the higher cost of steel to consumers in China’s price competitive industries.

I’m not so sure they are right.

In meetings with several of my managers earlier this week, I was pleasantly surprised to learn that they are already passing along higher raw material costs to customers. In 2005, when we were hit with the first significant run up in raw material prices, input costs had not changed appreciably in more than 20 years and everyone was caught flat-footed. Particularly in a country like China, where prices had only been going one way—down—managers were not used to pressing customers for price increases. Now it seems, they are doing so very aggressively.

When I commented that we had obviously learned a lot over the past three years, my managers shook their heads and said it was true. “We are getting better at negotiating increases, but there is more to it than that. 2008 is different from 2005. Since 2005,” they said, “companies that have not raised prices have either lost all of their cushion, or have fallen by the wayside. As a result, companies that have survived and prospered during this period have a greater ability to negotiate with customers in 2008 than they did in 2005.“

Besides being heartwarming, this conversation confirmed my suspicions as to why inflationary pressures are now coming to the surface, not only in China but around the world. When the first raw material price shockwave hit in 2005, manufacturers the world over, including those in China, were caught in a giant cost/price squeeze. China’s emergence as the world’s workshop had lowered the price for just about every manufactured product, while rising demand in China had helped to increase the price of every raw material. At the same time, competition in and from China prevented manufacturers from raising prices, resulting in decreased profit margins. If what my managers are telling me is correct (rising producer prices suggest that they are), that is bad news for inflation, but good news for manufacturers seeking to restore profit margins. With all their cushion gone, manufacturers have no choice but to pass along higher costs, and consumers have no choice but to accept them.

At the Economist Automotive Conference in Shanghai Thursday, I discovered another silver lining in this latest spike in steel prices. In his presentation, the speaker before me, Jerry Van Alphen, Vice President-Finance of Alcoa Asia Pacific, extolled the virtues of using aluminum in products like automobiles. Cars that use more aluminum are lighter, and lighter vehicles burn less fuel. As a result, automakers have been seeking to replace steel with much lighter aluminum wherever possible as part of their efforts to develop more fuel-efficient, environmentally-friendly vehicles. One impediment to doing so is the fact that aluminum, pound for pound (or kilo for kilo), is more expensive than steel. With the significant increases in iron ore and steel prices, however, steel is now pricing itself out of more and more applications. Whereas the ratio of aluminum to steel prices has historically been in the range of 5 to 1, this ratio has now been reduced to 3.5 to 1, improving the relative economics of using aluminum. Therefore, higher steel prices may actually help the transition to lighter, more fuel-efficient vehicles. That’s good news for everyone.

Admittedly, I may seem to be grasping for straws in trying to find some positives in this latest hike in steel prices. In business, though, sometimes you just have to take good news wherever you can find it.

“Taking coal to Newcastle” is an old British saying that refers to a pointless activity. Newcastle, one of the centers of Britain’s Industrial Revolution, was for centuries the main source of coal for London. Coal was so plentiful in Newcastle that the idea of taking coal there represented the epitome of foolishness in the minds of the British.

Taking coal to Newcastle, Australia in 2008, however, may not be such a bad idea. The price per metric ton of coal out of Newcastle, Australia is a key benchmark for the Asian market, and that price has tripled from US$40 per ton at the end of 2006 to over $120 today. While many other factors have been at work over the past year, bad weather in China has caused coal prices to spike 34 percent in recent weeks.

If you are like me, you have been taking coal for granted. Unlike oil resources, the majority of which are concentrated in a relative handful of countries, coal is everywhere. Besides, it is a nasty, dirty source of energy, which is falling increasingly out of favor at a time when concerns for greenhouse gases and global warming are at a peak. Right?

Well, it turns out that the opposite is true. The world can’t seem to get enough of the black stuff, and China’s switch from being a coal exporter to being a net coal importer has been one of the reasons why the balance of global coal supplies has been tipped, and the world is now facing shortages—and much higher prices.

Shai Oster, a veteran China reporter who now covers energy matters for The Wall Street Journal out of Beijing has just written an excellent, comprehensive piece on this subject with his colleague, Ann Davis. If you haven’t seen it, I encourage you to take a look. Among other lessons, it once again demonstrates just how pervasive China’s impact has become on the rest of the world.

Some of the key points in the article which particularly struck me:

• China has long been a huge supplier of coal to itself and the rest of the world. But in the first half of last year, it imported more than it exported for the first time, setting off a near-doubling of most coal prices around the world. The capper came in late January when a winter of punishing snowstorms and power shortages led Beijing to suspend coal exports for at least two months.
• Five years ago, China exported 83 million more metric tons of coal than it took in. Last year, that surplus had fallen to two million. The rapid loss of more than 80 million tons in exports amounts to about 12 percent of the internationally traded market.
• For the world, which uses coal for about 40 percent of its electricity, the result is similar to what happened after China became a net importer of oil in 1993.
• Chinese coal demand grew nearly 9 percent last year, raising its share to a quarter of the world’s consumption.
• China’s need for coal is rising as other factors around the world are putting severe strain on supply for the fossil fuel. Flooding at major mines in Australia since mid-January has dramatically stunted that major coal producer’s exports to Asian markets.
• Demand is rising quickly elsewhere. Japan, one of the world’s biggest importers, is burning even more coal since an earthquake damaged a nuclear reactor last year, doubling one utility’s coal intake. Longer-term pressure comes from India, which has mounted a major expansion of coal-fired electricity plants that is driving up the country’s coal imports despite its large domestic reserves.
• Some experts say coal prices could remain high or even keep climbing through 2009 or beyond, weighing on the already-slowing world economy. Even though coal is a leading source of atmosphere-warming greenhouse gases, its share of the world’s energy diet is increasing — which could help keep its price up in a recession.
• Although the use of cleaner-burning alternative fuels is on the rise, fast-growing energy consumption is expected to underpin coal demand. Still a relatively cheap — and abundant — alternative to oil, coal is sought in rapidly industrializing nations such as Brazil, India and Vietnam as well as China.
• And Chinese regulations have contributed to shortages. China has freed domestic coal prices to rise with demand, but has capped electricity tariffs. That led power plants to order less coal — leaving them short of coal when the storms hit.
• The coal shortage has rippled through other commodity markets, hurting China’s output of steel, copper, zinc and aluminum as electricity is being diverted for domestic industry and household heat and electricity. China’s largest copper producer, Jiangxi Copper Co., shut down some plants, contributing to higher U.S. copper futures.

Along with everything else, this is obviously not good news for inflation in China, which is now at its highest levels in 10 years.

I traveled back to the United States Sunday to attend certain meetings and to celebrate Spring Festival with my family, which I often do when China closes for these long holidays. Having left Beijing in the midst of the unprecedented snow storms that have swept the country, I have frankly been quite surprised by how little of what is happening in China is being reported by the news media here. The New York Times has run some informative articles on the emergency conditions in China, but the TV media has been consumed with news of the Democratic and Republican primaries, President Bush’s State of the Union message, and the current state of the U.S. economy.

I realize that I have already written a post on this topic Monday. However, given China’s importance in the global supply chain, I want to emphasize to every company around the world that is depending on goods from China that the situation in China is serious, and it is widespread. Forget about everything else. This is the story in China today. Literally, millions of people and thousands of businesses are being affected.

My latest information is as follows:

• Highways in as many as 13 or 14 provinces are closed. Supplies and products cannot be received or shipped.
• Electricity is limited, and only certain operations in many factories are running.
• Roads are not expected to be open for another week. When opened, people and coal transfer will be the first priority.
• Travelers in major transportation hubs including Shanghai are experiencing one and two-day delays in getting outbound flights.

If you are depending upon supplies from China, I suggest that you contact your Chinese suppliers to obtain the latest update, and insist upon periodic updates in the weeks ahead. Expect at least a two- to four-week interruption in supply.

China’s heaviest snowstorms in five decades crushed homes, grounded flights, disrupted electricity and left hundreds of thousands of travelers stranded, a week before millions take to the roads for the Lunar New Year holiday – almost all in southern locales that don’t normally get snow.

Highway, rail and air service are being impacted, with shipments of coal, fuel and other raw materials to power plants and manufacturing plants being seriously delayed.

Our information is consistent with that reported in major media. We believe that factories in as many as 17 provinces are being affected, with those in Hubei, Hunan and Jiangsu being amongst the hardest hit. Many are facing power shortages and significant delays in receiving raw materials. Due to priorities being placed on getting much needed coal to power plants, some are being told by logistics providers that shipments of finished products to customers may be delayed for as much as two weeks. This means that both production and sales of many factories in China will be negatively affected in both January and February.

On a personal level, severe weather has made travel nearly impossible. Two of our managers from Hunan Province left Beijing Friday afternoon, January 25, on a flight to Guangzhou where they hoped to get a train to their home in Hunan Province. As of Monday evening, they were still stranded in the Guangzhou railway station, along with 150,000 other travelers. They are being told that over 600,000 people are stranded in Guangzhou when air and bus transportation are also taken into account. A true state of emergency exists throughout much of China.

Moreover, this bad weather and snarled transportation comes a week before Spring Festival a.k.a Chinese New Year, China’s most important holiday, a time when over 100 million Chinese travel to return to their hometowns or visit relatives elsewhere. The holiday runs from February 6 to February 12 this year, and the government has predicted that over 2.0 billion journeys would be made during this period.

In addition to its negative impact on manufacturing operations, the severe weather will put further upward pressure on inflation, which remained at 6.5 percent in December of last year. “Energy shortages and transportation bottlenecks are likely to aggravate inflation pressures in China in the short term,” Goldman Sachs Group Inc.’s senior economist Liang Hong said Monday. “These latest developments will likely push up near-term CPI inflation to levels that will be very uncomfortable for policy makers and China’s investors.”

Does that tell us anything about whether the coming year will be the Year of the Mouse or the Year of the Rat?