China will fuel global economy

THE good-news China story remains intact despite the turmoil in the Middle East.
Indeed, China offers us something of a buffer against things getting worse -- sparking either significantly higher oil and petrol prices or higher interest rates or both.
And this is true, despite the rocky road ahead for investors over the next few weeks.
That's good news for them and good news for us; and great news for the resource-rich states -- Western Australia, Queensland and the Northern Territory.
Unless, of course, we choose to shoot ourselves in the collective foot. Both feet, lower back, neck, elbows and just about every other collective body part.
That's what we would do to ourselves if we took the "advice" of the dark greens and closed down our carbon-rich export industries. Because the China story is extremely energy and resources-rich.
The economic and investment consequences of what is happening in the Middle East turn on the price and availability of oil.
Provided the oil keeps flowing and/or it doesn't go to $US100-plus a barrel, it'll be essentially business as usual.
There hasn't been any interruption to oil supply and the price is now settling back into the low-70s. Despite being an increasingly significant oil importer, China can live with that quite comfortably.
But it will also give pause to the Chinese powers-that-be. They will look increasingly to diversify away from one three-letter word -- oil, out of the Middle East, to another -- gas, out of Asia. And in particular, from us.
So we are in a no-lose situation. Either China continues to fuel a very strong global economy -- and we get to sell more energy and metals at high prices, or high oil prices slow the world economy, but we get to sell more coal and gas at related high prices. Although metals prices would come off.
The important thing to understand is that this is the scenario projecting into the medium-to-long term. It looks likely to be somewhere between very good to even better.
With that one big proviso of course. That one way or t'other we won't be living in caves.
First though, we have to "get there". And that means navigating not only what comes out of the Middle East, over the next weeks and months, but the Fed building in Washington.
And what that is, as 19th century French diplomat Talleyrand famously said, it's too soon to tell.
It would be very dangerous to assume that the Fed has done, or almost done, lifting interest rates -- despite what its chairman, Big Ben Bernanke, seems to be saying,
O N ONE level, the US Fed works in exactly the same way as our Fed. It decides what it does with rates, meeting to meeting.
At any time, it might intend to be doing something in the future, but it will only actually decide what it does at each meeting.
In very simple terms, if it sees inflation as a problem, it will raise rates. No matter what it has promised.
The investment heft of all this is to be careful about being seduced by both seeming good news and bad news.
On the one hand, don't assume that Bernanke is promising no further rate rises. Rises that would whack Wall St and also our sharemarket.
But equally, don't see it all as doom and gloom because of the Middle East.
The key is to be flexible enough to ride through -- or benefit from -- whatever the short-term throws at us. With the long term still looking good. For the market, for asset prices more generally, for jobs. Provided we keep green hands off the levers.
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