China's massive industrial sectors and population centers in the East of the country are heavily dependent on renewable energy in West China.

The "East Data West Compute" program for Chinese AI is similarly reliant on cheap power and computing capacity, generated in China's far west.

But the sprawling solar and wind farms face a constant battle against China's desert sand.

The Taklamakan Desert is the world's second-largest "shifting sand desert", and is also home to some of the world's largest solar and wind farms.

Chinese engineers are experimenting with bamboo and other grasses, to reclaim the areas surrounding the energy and road projects.

Report:

Good morning.

Over the past two decades, China has invested hundreds of billions of dollars in power generation, in West China. The biggest hydropower project in history is underway in Xizang. And massive solar and wind projects are already in place in Xinjiang, with more of those coming:

Most of that energy, generated by water and solar and wind in West China, is used by consumers in East China. The Chinese have built the world’s longest and most advanced Ultra-High-Voltage transmission network for that one express purpose: to carry all that power from West China, to where most Chinese live and work:

All that power is produced at industrial scale, and China now enjoys some of the lowest electricity prices in the world, and is adding much more power generation capacity every year than is demanded. In other words, China produces vast volumes of surplus electricity, and that means falling costs to households, and to factories:

It also allowed China to build an entirely new industry, called “token outbound”—it’s a trillion-dollar industry that involves AI users across the world running their queries through computer servers here in China. The compute is performed there, in the desert, and the results sent back to the users, who are outside China. That cheap power generates value that is worth many times more than the cost to generate the data output, and adds to China’s trade surpluses.

So right now, hundreds of millions of Chinese households, and hundreds of thousands of Chinese factories, are dependent on low-cost power from West China to live and work. What’s coming is perhaps billions of AI users across the world, who are also reliant on those same facilities, there in West China, to do their work.

A lot of people in a lot of places, then, are invested in finding a solution to this problem, right there. The sand dunes in China’s deserts are always shifting, and desert sand represents a serious threat to the efficiency of all those renewable energy projects. The deserts are windy—which is good—but the windblown sand wears out the turbine blades and gear boxes. Efficiencies drop by between 2 and 20%.

Solar plants face the same problem, as desert sand settles on the panels and blocks out sunlight. There is a brand-new industry, of using drones to clean solar panels, but most of those approaches involve using water, and that results in another desert-specific problem—it costs too much to get the water out of the ground or hauled to the sites, to make it worth the trouble. That’s to say that using drones to clean buildings, or solar farms, is a multi-billion-dollar industry in the making, but not in the deserts where the costs of hauling the water around exceeds the value of the cleaning itself.

Chinese engineers have been working on this problem for a while. It started with the construction of a highway though those deserts, that experts said was impossible. Building the highway through the Taklamakan Desert was hard enough, then came the 24/7/365 battle to keep the sand from completely covering the road. The solution for that project was the construction of a huge crisscross pattern of reed and nylon fencing. Fifty-seven square kilometers is 57 million square meters, over 21 square miles. The reed and straw checkboards were “cheap, convenient, and effective”.

Beginning in 2022, a new initiative to upgrade those defenses was begun, and in that photo, above, we see the challenge. The protective barriers are only waist-high, at the most, and just a couple of hundred meters away is desert that stretches forever. What might work for a narrow strip of concrete with heavy trucks moving back and forth isn’t maybe going to work for a solar or wind farm that is the size of an entire city.

After 30 years of data on the artificial shelterbelt, researchers found ecological and financial benefits, cost savings in transportation, and local improvements to the Xinjiang economy. But the maintenance costs were high, those straw and reed defenses were a draw on water tables, and all they did was slow, but not stop, the shifting sand dunes. The analysts concluded that solar power should be used to handle the water, and more shelterbelt areas need to be developed, and more often.

And it’s that final part that has Chinese scientists trying bamboo, instead. The straw and reed checkerboard defenses are widely used, and they do work, somewhat effectively, for desert roads. But they are also brittle, and fall apart in just a few years:

Plastic fencing is one possibility—the great thing about plastic is that it lasts forever; the bad thing about plastic is that it lasts forever. And under the new five-year conservation plan, the Great Green Wall will be strengthened in the most ecologically friendly ways possible.

Bamboo is a natural first choice, if they can get it to work. Bamboo is strong, flexible, and it lasts a long time. The idea here is NOT to grow bamboo forests in the desert—young bamboo needs watering a few times a week, and established bamboo needs deep watering at least once a week. For now the scientists are replacing those reed checkerboards with bamboo ones. Simply doing that means the checkerboards last three times longer, and that means lower maintenance costs, and it follows that China can lay a lot more of them.

China has more bamboo forests than anyone, and an advanced bamboo production industry, so it would mean a lot of new business for Chinese bamboo plantations and farmers if they can make the project work in the North and West, and across the thousands of square miles of area surrounding the solar and wind farms.

Be Good.

Resources and links:

China starts building world’s biggest hydropower dam
https://www.theguardian.com/world/2025/jul/21/china-starts-building-world-biggest-hydropower-dam-yarlung-tsangpo-river-tibet

China Generated More Electricity in 2024 Than the U.S., EU, & India Combined
https://www.voronoiapp.com/energy/-China-Generated-More-Electricity-in-2024-Than-the-US-EU--India-Combined-5260

"Experts" wrong again: Global tech companies renting China's excess data centers

China’s Ambitious Plan to Build the World’s Biggest Supergrid
https://spectrum.ieee.org/chinas-ambitious-plan-to-build-the-worlds-biggest-supergrid

Effect of Windblown Sand Particles on Aerodynamic Efficiency of Wind Turbines in Desert Environments: A 3D Eulerian-Lagrangian Approach
https://www.jafmonline.net/article_2826.html

Controlling blown sand along the highway crossing the Taklimakan Desert
https://www.sciencedirect.com/science/article/abs/pii/S0140196304000072

Tarim Oilfield desert highway project
https://www.seetao.com/details/133285.html

Ecologic Service, Economic Benefits, and Sustainability of the Man-Made Ecosystem in the Taklamakan Desert
https://www.frontiersin.org/journals/environmental-science/articles/10.3389/fenvs.2022.813932/full

Check out China's first carbon-free desert highway
https://english.ts.cn/system/2024/07/16/036919387.shtml

Large-scale replanting completed for ecological shelterbelt along Tarim Desert Highway
https://www.cnpc.com.cn/en/nr2026/202605/e08548e9bb9f43f7bb22dcad1b930f60.shtml

Case Study: A Desert-based PV Power Plant in Northern China
https://www.wissonrobotics.com/en/Drone-Cleaning-Solar-Farm-Maintenance.html

Investigating impacts of erosion on wind turbine blades
https://www.aip.org/scilights/investigating-impacts-of-erosion-on-wind-turbine-blades

Chinese scientists turn to bamboo to strengthen the Great Green Wall
https://www.scmp.com/news/china/science/article/3361945/chinese-scientists-turn-bamboo-strengthen-great-green-wall

Could Bamboo Be China’s Secret Weapon Against Desertification?
https://modernmechanics24.com/post/china-uses-bamboo-fight-desertification/

China’s ‘green great wall’ in Inner Mongolia traps 3 more deserts
https://www.scmp.com/news/china/science/article/3317376/chinas-green-great-wall-inner-mongolia-traps-three-more-deserts

World’s Largest Solar Farm Goes Online, Covering an Area the Size of New York City
https://esgnews.com/worlds-largest-solar-farm-goes-online-covering-an-area-the-size-of-new-york-city/

The Strait of Hormuz was closed in the early days of this year's War on Iran, with severe impacts on the the global energy trade.

Now maritime shipping faces its worst crisis in modern times, as other major chokepoints are shut off.

The Houthis have again sealed off the Red Sea and the Suez Canal. The Panama Canal traffic is slowing, because of low rainfall. The Danube and Rhine Rivers in Europe are at record-low levels and shipping volumes are down 80%.

Shipping through the Turkish Straits is also threatened by the strikes on refineries and port facilities on the Black Sea.

We have no historical data to guide decisionmaking, in the case of multiple failures in the maritime shipping industry.

Report:

Good morning.

This is a map of the key bottlenecks for maritime shipping. They are numbered from West to East. #8, the Malacca Strait, is actually the busiest in the world, by volume. But global logistics are falling apart, right now, because of collapse in ship transits through the Suez Canal, the Red Sea, and the Strait of Hormuz. As it happens, there are also big problems for the Panama Canal, and another looming crisis at #4, and the Black Sea shipping traffic.

We have strong historical data on what happens when one of those chokepoints has a problem, and the impact on global trade when ships are forced to go around. We do not have any historical data if several of these critical nodes go offline at the same time, and that is where we are.

We can lump Bottlenecks #5 and #6 together, on that map. The Houthis have again closed much of the ship traffic through the Red Sea, and on to the Suez. Last Sunday 11 ships carrying commodities went through, and it’s instructive to note where they were going: 2 million barrels of crude were allowed to go through to Ningbo, China. Another million barrels of Russian crude are also on their way here. Another Very Large Crude Carrier with another 2 million barrels were outbound to Zhoushan. That made four Chinese supertankers allowed to pass through.

And that particular waterway was closed before. This is a JP Morgan report that covered what happened the last time. 30% of the global container trade goes through the Red Sea and Suez, and shipping costs went up 5 times for all the ships that used to head that way, because of the re-routing around Africa. That adds 4,000 miles, one way, for ships sailing between key ports in Asia and Europe.

So going through the Suez takes about 18 days; going around takes 30 days. Bunker fuel costs are over $800 per ton, because of the closure of the Hormuz, so in increase in the fuel costs alone are nearly a million dollars, one way. Charter costs and longer crew times are passed along, eventually to consumers, and they are reflected in the data for container freight rates:

These are cost spikes that we will see again, and soon, for as long as the Red Sea is closed. So the War on Iran has blown up shipping routes through the Strait of Hormuz and the Red Sea, and so the timing isn’t great for anything to go wrong anywhere else.

But Panama isn’t getting nearly enough rain to keep the Canal traffic at normal levels, and the canal authority is cutting transits through. There are strong historical data there, too: last time El Nino hit, the water warmed up, the water level dropped, and regulators reduced the flow of traffic.

Monthly ship transits in 2024 dropped from over a thousand, to under 700. In 2026 the traffic is already trending down, and the authorities have halted new auctions from 25 July onward. Water levels are forecast to drop through September, and that means big problems for Panamax shippers in the third quarter.

Lousy weather is also deeply impacting shipping in Europe. The Rhine River is a critical artery for heavy industry in Germany, and the river is at record lows. As a result, ships are only able to transport small loads—around 20% of normal. Naturally that takes more time, and costs are going up. Shipping costs from Rotterdam to Karlsruhe have more than tripled in a single month, and remember again that it costs a lot more to get ships to Europe in the first place, with the Red Sea and the Suez blocked off.

We even got bad news from Brazil. The Amazon River is now more critical than ever for the agricultural trade, and shipping companies expect those channels to get cut off later in the year, as a result of El Nino-related weather patterns. This is the global advisory from Maersk, and means that unless Brazil gets a lot more rain, fast, capacity restrictions will begin in October, and will stay on through the end of the year. That impacts almost 40% of soy exports to Europe, with knock-on effects to livestock feed, and the European meat and dairy industries.

Summing up, the wars in the Persian Gulf have shut down ocean freight going through the Strait of Hormuz, the Red Sea, and the Suez. Shipping through the Panama Canal, and down the Rhine River, and the Amazon, won’t be back to normal until heavy rains fall again. Those are problems that are baked in to world trade, right now.

What we don’t know, yet, is the effect of the Russia-Ukraine War on Checkpoint #4. But it doesn’t look good. Over two million barrels a day of oil is shipped from ports on the Black Sea, through the Turkish Straits and the Bosphorus, to markets in Europe. We know that Ukraine is hitting refineries in Russia, and that Ukraine has lost a third of its export capacity for grain out of the Black Sea.

Ukraine is 6% of global wheat exports and 11% for corn, knocking each down by a third is a big problem for food supplies. Here again, though, there is recent historical data, on the impact on food commodity prices, with the price charts going vertical in the early days of the war.

And so we’re losing count, on the cumulative impact of these waterway closures. Focusing only on energy, the closure of Hormuz takes over 20 million barrels per day off global markets. Plan B is to build pipelines so Saudi and the Emirates could send some oil—over 4 million bpd—out through the Red Sea. But the Houthis have closed that off, so we’re now at 25% of the world energy supply offline. Now we’ve got the Black Sea route in trouble, which is another 2% of the world oil trade.

This is geography, and it’s not complicated. And the economic model for the world is to have backups, and go-arounds, if there is a single point of failure. There is no economic model to guide policymakers, or business executives, in the case of cascading, multiple failures. But we’re going to find out.

Be Good.

Resources and links:

Red Sea shipping slows after Houthi attack on Saudi Arabia, data shows
https://www.reuters.com/world/middle-east/red-sea-shipping-slows-after-houthi-attack-saudi-arabia-data-shows-2026-07-27/

What are the impacts of the Red Sea shipping crisis?
https://www.jpmorgan.com/insights/global-research/supply-chain/red-sea-shipping

Commercial navigation in the Red Sea under attack
https://www.itf-oecd.org/sites/default/files/repositories/red-sea-crisis-impacts-global-shipping.pdf

El Niño Hits the Panama Canal
https://www.wsj.com/wsjplus/dashboard/articles/el-nino-hits-the-panama-canal-a27222c3

Global Trade Faces Fresh Test as Panama Canal Curbs Bookings
https://www.bloomberg.com/news/articles/2026-07-21/panama-canal-to-suspend-some-vessel-bookings-on-water-outlook

Rhine water level drops to around record lows, costs for industry rise
https://www.reuters.com/business/environment/rhine-water-level-drops-around-record-lows-costs-industry-rise-2026-07-31/

Global Trade Faces Fresh Test as Panama Canal Curbs Bookings
https://gcaptain.com/global-trade-faces-fresh-test-as-panama-canal-curbs-bookings/

Rhine water level drops to around record lows, costs for industry rise
https://www.reuters.com/business/environment/rhine-water-level-drops-around-record-lows-costs-industry-rise-2026-07-31/

Rhine water level close to record lows, cargo vessels keep sailing
https://kfgo.com/2026/07/30/rhine-water-level-close-to-record-lows-cargo-vessels-keep-sailing/

River Conditions in Manaus (Brazil) – Dry Season Period 2026
https://www.maersk.com/news/articles/2026/07/17/river-conditions-manaus-brazil-dry-season

Temporary Suspension of the Daily Auction – Panamax Locks

https://nortonlilly.com.pa/temporary-suspension-daily-auction-panamax-locks/

The world’s most strategic straits and channels

https://interactive.aljazeera.com/aje/2026/mapping-oil-hormuz-chokepoint/

Ukraine’s Black Sea ports lose a third of grain export capacity, farmers’ union says

https://www.reuters.com/world/ukraines-black-sea-ports-lose-third-grain-export-capacity-farmers-union-says-2026-07-15/

In 2022, China began construction of the world's largest AI system.

The initiative, called "Eastern Data, Western Compute" relocated energy-intensive data center operations to West China, where electricity production is abundant.

Later, China's open-source large-language models and breakthroughs in semiconductors allowed for AI inference to be performed at the world's lowest cost.

China now exports AI output, and its Token Economy transforms cheap power and data processing into high-profit-margin services.

Report:

Good morning.

Investors, tech companies, and most governments have thought that the AI war will be won with the fastest chips, or the most powerful large language models. We pointed out several times, previously, that the demand for electricity was one key bottleneck that nobody was paying attention to, until very recently.

But there is another. The United States and Europe, and most of Asia as well, have hit a wall in data center capacity. There is no commercial real estate available today to stack the big, expensive server racks that Nvidia builds.

AI requires massive facilities that are highly specialized. And the US is out of space. Meanwhile, China has already completed the largest state-sponsored tech infrastructure buildout in history, and has a huge surplus of data center capacity, and also happens to have the world’s cheapest electricity, and the world’s most cost-effective large language models. As a result, tech companies across the world are simply renting China’s excess compute.

CBRE is not a Silicon Valley hyperscaler—they’re just the guys who know everything that’s going on in commercial real estate across the world. According to them, there is an “extreme scarcity” of available space for AI. In the first quarter, vacancy was 6.7% globally for data center capacity. Waves of new supply have been announced, but few are being completed. Atlanta’s data center vacancy rate is 1%, and it’s the second-tightest market in the country. That means that the vacancy rate in the Northern Virginia region is even lower than 1%. In the United States, new supply is absorbed as soon as it comes online.

80% of space under construction in the biggest markets is already pre-leased. The vacancy rates are falling across the world, and here is the money line: companies that have not leased data center space face limited options through 2030. The pipeline of new projects is insufficient to dent the demand, and it’s taking longer to finish projects:

The situation isn’t much better in Europe. Vacancy rates there are at all-time lows, and are forecast to hit 6.5% later this year:

Looking next to Asia: Singapore and Hong Kong have no spare capacity for new data centers. Japan and South Korea: data centers are sucking up new electricity production as fast as it comes online—and thanks to the ongoing war in Iran, which has choked energy supplies through the Strait of Hormuz, they shouldn’t expect much good news if they’re hoping for more power. Malaysia and Indonesia: pre-leasing levels are high and spare capacity is hard to find.

Asia will be 40% of total global capacity for AI and is expected to double in the next five years, but $800 billion in new investments will be needed in Asia to make that happen. But there are big hurdles in the way: Asian economies are major net importers of energy, and data centers are major consumers of power. There are competing demands for land near major cities.

So Asia has a problem. AI data center demand is growing in Asia, but investments in the data centers aren’t keeping up. Remember Moody’s forecast of $800 billion in new data center investment in Asia by 2030. But that investment isn’t coming in. 2024 was a record year for data center investment, at about $21 billion:

That is a big spike over previous years, and almost more than all the previous years combined. And in 2025, investment grew to $15 billion through the first seven months.

But what is needed is $200 billion in new construction, every year through 2030. It’s not even close. The energy problem, the power demand problem, the land problem—they swamp everything. The data center builders know that as soon as they can be built and plugged into the grid, they will lease all of it. But they can’t be built, and cannot be plugged into the grid.

But China is the standalone exception, in Asia and everywhere else. Four years ago, Chinese policymakers launched the East Data West Compute initiative. Western China is a literal powerhouse of electricity production, while East China is where companies generate the demand for data processing.

China built eight national computing hubs, and ten national computing clusters. An agency called the National Data Administration was launched to stitch all the nodes and clusters together, and coordinate the data flows. Major investors were found for the respective hubs and clusters; these are big companies here, household names in China:

As an aside, this report is dated November 2025, and DeepSeek was a key partner for “model deployment”. Now, DeepSeek is a household name everywhere, and DeepSeek’s open-source large language model blew up the world for fanboys of OpenAI, Grok, and Anthropic.

Each node and hub in China’s EDWC system had specific objectives, KPI’s for compute capacity and speed, and a year into the program the Chinese had finished 14 national supercomputing centers, and 60 intelligent computing centers. China was forecast to pass the United States in computing power by 2025, or last year.

And here we go again, with so-called industry experts in the United States who saw China had overbuilt capacity in data centers, in this case. In the United States and Europe, investment and construction are reactive: in reaction to new demand. In China, it is anticipatory—-they build well in advance of new demand.

This is not a policy failure, but a strategy, and a strategy they have used in every single industry, every single time, and then the world has no choice but to buy from here. Because it’s the only place where anyone can buy, in this case, data center capacity.

And now in 2026, China has a booming export economy for AI tokens. It’s a brand new industry, called “token outbound”. The MIT Technology Review assumed that China was building data centers for domestic tech companies, and wondered where the demand would possibly be coming from.

Now we know. The demand is from everywhere. Tech startups across Asia are rapidly adopting AI in their operations, but data centers haven’t even been built in their markets. And accessing data centers in the United States costs too much. China is a lot closer anyway, and the round-trip latency between Shantou, in Guangdong, and Singapore is 32.7 milliseconds. That means it’s much faster for a tech company in Singapore running an AI query to get it done in China, compared to the US.

For companies in China, it means new overseas customers, and for everything in the tech and hardware space. China has been under sanction for years, and could not build their AI architecture with the fastest chips from Nvidia and the other Western suppliers. So they had to build their own chips, and they developed chip-stacking architectures that optimize the performance of Chinese semiconductors. Then came the Chinese large language models developed by DeepSeek and Kimi and Alibaba and others that provide the same performance at a fraction of the cost.

So the chips, the LLMs, and the East Data West Compute project form an entire, integrated system of Artificial Intelligence. Combined with cheap Chinese electricity, it has become a massive, high-margin service export. What crosses the border is the AI results, and that huge Chinese buildouts in the power generation, the chips, and the data centers now threaten all that investment in foreign markets. Companies don’t care where the heavy lifting of AI inference gets done, as long as the work is performed quickly, and cheaply.

The electricity is in China, and stays here. The computing power is in China, and stays here. But the value is exported. Cheap electricity generated in Xinjiang powers the servers right there in the desert. The resulting AI tokens are then routed through international fiber hubs like Shantou, which export them globally at a massive premium.

This feature in China Daily goes more deeply into the nuts-and-bolts of how the Chinese AI export model is working. The AI economy requires vast amounts of power, fast servers, fiber to connect them all together and to the outside world, and policy regulation to make sure nothing goes off the rails.

Then, just like in every single other industry: China overbuilds capacity—deliberately—and deliberately pushes prices down.

While the rest of the world is choking on the need for hundreds of billions of new CapEx spend here in Asia, and over a trillion dollars in the United States, and are still years away from even turning them on, China is already taking the industry over.

Be good.

Resources and links:

Global Data Center Supply Can’t Keep Up with Demand, Resulting in Extreme Scarcity of Available Space
https://www.cbre.com/press-releases/global-data-center-supply-cant-keep-up-with-demand-resulting-in-extreme-scarcity-of-available-space

European Data Centres Figures Q1 2026
https://www.cbre.com/insights/figures/european-data-centres-figures-q1-2026

AI growth to further strain data centre capacity
https://www.cbre.com/insights/books/european-real-estate-market-outlook-2026/data-centres

European Data Center Figures
https://mktgdocs.cbre.com/2299/12439527-d1a2-46eb-b485-4fd377f0d618-223048296/European_Data_Centres_Figures_.pdf

2025 in review: Asia emerges as the hub of the data center boom
https://www.lightreading.com/data-centers/2025-in-review-asia-emerges-as-the-hub-of-the-data-center-boom

The Asian perspective on the data centre landscape
https://www.whitecase.com/insight-alert/asian-perspective-data-centre-landscape

APAC data centers: Dispersed growth, unique challenges
https://www.moodys.com/web/en/us/creditview/blog/apac-data-centers-800bn-dollar-opportunity.html

More Than Meets the AI: China’s Data Centre Strategy
https://icds.ee/en/more-than-meets-the-ai-chinas-data-centre-strategy/

China explores new AI ‘Silk Road’ with token outbound
https://interestingengineering.com/inside-china/china-explores-new-ai-silk-road-with-token-outbound

Tokens are China's next goldmine
https://www.chinadaily.com.cn/a/202606/01/WS6a1cc2c4a310d6866eb4baae.html

The Download: China’s empty data centers, and OpenAI’s new practical image generator
https://www.technologyreview.com/2025/03/26/1113810/the-download-chinas-empty-data-centers-and-openais-new-practical-image-generator/

China's AI data center boom goes bust: Rush leaves billions of dollars in idle infrastructure
https://www.tomshardware.com/tech-industry/artificial-intelligence/chinas-ai-data-center-boom-goes-bust-rush-leaves-billions-of-dollars-in-idle-infrastructure

Biden signs bill to boost U.S. chips, compete with China
https://www.reuters.com/technology/biden-sign-bill-boost-us-chips-compete-with-china-2022-08-09/

America's biggest power grid just told data centers it can cut their power off
https://startupfortune.com/americas-biggest-power-grid-just-told-data-centers-it-can-cut-their-power-off/

DeepSeek challenges the AI dominance of Silicon Valley
https://dhinsights.org/news/deepseek-challenges-silicon-valleys-ai-dominance

China is "changing lanes" and winning on all fronts in the Chip War

China’s Got Big Plans for AI — In the Desert
https://www.bloomberg.com/news/articles/2025-07-08/china-builds-ai-dreams-with-giant-data-centers-in-the-desert

The world's central banks are buying gold at the highest levels in decades, and China continues to stockpile gold while dumping US Treasury bonds.

The valuations for gold mining stocks are far below other investment classes, especially compared to tech shares.

Mining companies require high capital expenditures to start operations, and to maintain them. Tech companies, by contrast, can start and grow on small budgets.

But today's tech companies require hundreds of billions of dollars in new CapEx simply to grow revenues at all, while facing existential challenges from Chinese AI and semiconductor industries.

Report:

Good morning.

In January, Gold was the number one export from the United States, ahead of drugs, ahead of energy, ahead of semiconductors, ahead of aircraft. We were expecting that to be a one-off, but gold exports from the US continued through all of Quarter One.

Gold topped US exports for the first three months: $45 billion in gold was exported, ahead of civilian aircraft at $39 billion and refined petroleum at $30 billion.

Primary buyers of that gold, globally, are central banks. The institutions that can literally print money, to buy US Treasury bonds or to lend in their own economies, are instead gold at the highest levels in years.

That is a reversal from previous policies of the world’s central banks, who were net sellers of gold from 1965 through 2000. And in the 2020’s, gold buying by central banks outside the G7 went vertical, as China, India, and emerging market economies decided they couldn’t get enough.

This is a picture of the de-dollarization trade, right there. For years, central banks held more than $2 worth of US Treasury bonds for every $1 dollar in Foreign Exchange gold holdings. The Y-axis is trillions of dollars, and since 2022, central banks sold over $500 billion in US treasury bonds, and bought over $3 trillion in gold.

And it’s not like there were fewer Treasury bonds to buy—trillions of dollars’ worth of new US government debt has been created since then, but central banks on balance are selling Treasury bonds instead of buying, and so interest rates are going up.

China is the 800-pound gorilla in the room for a lot of these data. They are dumping Treasury debt, while buying gold. That in itself is historically unusual: typically countries who run large trade surpluses, like China does, invest those surpluses into productive assets in the country where the surpluses were generated.

Under classical economic theory, we would have expected them to invest in new factories in the United States, or to buy income-producing debt instruments, like Treasuries. But the Chinese instead are taking the dollars earned in trade, buying gold, and shipping it to vaults back here.

And that was confirmed again in the Q1 export data. Hong Kong is now the second largest buyer of US gold, passing London for the first time ever. Hong Kong is the repository for China’s offshore gold.

So central banks’ demand for US government debt is going down, while their demand for gold is going up. But the supply of new gold is limited by what comes out of the ground. And it’s here we’ve got a lot of questions.

And I’ll preface everything that’s coming next, with the disclaimer that nothing we do or say here is a recommendation to buy or sell investments. For the record, I don’t buy stocks at all; our investments are in our own companies. There are a lot of stocks and companies we hate, and we make that kind of obvious, but that is still not a recommendation on our part for anyone to sell shares.

Moving on, then, to the valuation problem. Gold miners are selling their production into a market that cannot get enough of it. Even the Chinese want to buy it. And that is very different, already, from these stocks that are sucking all the air out of the room. The Artificial Intelligence investing theme may be falling apart right now, in real time, and in large part because Chinese large language models now deliver the same performance at a fraction of the price. And China’s chip fabs are just a little behind the top chipmaking firms in the West, and may not be behind at all.

So we’re asking the question today, whether gold mining stocks are deeply undervalued, and especially relative to the companies that are grabbing all the headlines.

The Price to Earnings ratio is a traditional, old-fashioned way of looking at how much money a company actually makes, compared to the stock price. Simply put, it’s how long it takes an investor to get his money back in companies’ profits. GDX is an index of gold mining stocks traded in the United States, and the average stock price is 13 times today’s earnings. The QQQ is the technology index, and investors there are waiting 30 years. So those tech investors obviously expect earnings to accelerate, to speed up.

But that’s the problem, because big tech now faces the same issue that always faced gold miners. For decades, the advantage for Silicon Valley companies is that they can grow, quickly, without high levels of capital expenditure.

Gold miners, on the other hand, have to spend a lot of money, and time, to get their mines up and running. It takes over a decade just to get a new gold mine surveyed and approved, then huge investments in heavy mining equipment. All those capital commitments are upfront, and involve hiring hundreds of professional mining engineers and specialists.

It’s simply not possible to start a new gold mining venture in a college dorm room, for example, on a shoestring budget. Gold mining is expensive, and it’s capital-intensive to keep the mines going once they’re set up. That’s why investors need look at free cash flow, besides just earnings. Earnings by themselves are deceptive, and especially so in the case of companies with lots of expensive equipment that needs to be depreciated and replaced.

But today it’s the tech companies that are pouring hundreds of billions of dollars into new CAPEX. Price to Future Cash Flows for the tech companies are far higher now, than for gold mining shares:

Let’s look at the top three gold mining companies by market cap, Newmont, AEM and Barrick Gold. Newmont Corp has a current Price to Earnings of 11.77, and a forward P/E—price divided by expected earnings next year, of 8.76. Price to Future Cash Flow is 10.76. Again—the lower the number, the more attractive the shares, from the point of view of a traditional investors.

Agnico Eagle Mines, current P/E of 13.6, Future of 11.3, Price to future cash flow of 16.3.

Barrick: P/E of 10.22. Forward of 8.9, P / FCF of 11.5.

Contrast those with the biggest technology names. The difference between big tech now, and before, is how many hundreds of billions of new capital expenditure are required to keep growing. Nvidia’s forward P/E is 16.2. But the Price / FCF is 42.04. Meta is Facebook; Price / FCF is 31. Microsoft, Price / Free Cash Flow is 39.

The biggest tech names are “priced to perfection”; everything has to go perfectly well for those Capital Expenditures to translate into the necessary trillions of dollars in future profits. Meanwhile equity investors also seem to believe that central banks are going to change their minds about gold, and that China will.

The market capitalization for Facebook is $1.3 trillion. All the publicly traded gold miners, combined, are worth just $23 billion. Here’s a data point that shows that a lot of people are very wrong, about something: Estimates for Facebook’s new CAPEX for 2026 are over $125 billion.

For 2027 it will be a lot more than that, perhaps double, over $200 billion. But for just $25 billion Facebook could buy outright most of the gold mines in North America.

Executives of gold mining companies believe that their CapEx will result in future cash flows, in sales of gold, and believe that buyers in China are waiting for gold to come out of the ground so it can be shipped off to Hong Kong the next day.

But the people running Facebook and Microsoft believe that their capex will result in far higher future cash flows and AI revenues, and believe that China’s tech industry won’t be around.

Somebody is wrong, and so are their investors.

Be good.

Resources and links:

What are the US top export items in Q1/2026?
https://tradeint.com/insights/us-top-export-items/

Chinese gold imports stay elevated
https://x.com/KobeissiLetter

Buy gold, wear diamonds

Told you—buy gold

Tether is buying more gold than China

Weekend thoughts

Gold and Geopolitics

Weekend thoughts

This is a weekly digest of unassociated pictures (graphs mostly) I saw during the week. Not much context is given…

Read more

12 days ago · 62 likes · 6 comments · No1

China’s gold buys are accelerating in 2026

New mines take nearly 18 years to build in 2020-23
https://theoregongroup.com/investment-news/new-mines-take-nearly-18-years-to-build-in-2020-23/

How Gold is Mined: The Lifecycle of a Gold Mine
https://www.gold.org/gold-supply/gold-mining-lifecycle

Gold Wars: investors, central banks, and BRICS are dumping dollars for "safe haven" of gold

Stock data from www.finviz.com and Bloomberg

US exports of LNG are soaring, with Qatari natural gas production offline for years after Iranian strikes.

Europe is highly reliant on US exports of liquefied natural gas, after the EU banned purchases of Russian energy.

But Asian buyers that previously sourced from Qatar are paying record prices for LNG in spot markets, and snapping up cargoes that previously would have gone to Europe.

American LNG companies will boom for years as Qatar rebuilds, and with US feedgas costs some of the lowest in the world. That results in massive margins after liquefaction and export.

Report:

Good morning.

The world’s attention is focused on the disruption of crude oil markets, now that the Strait of Hormuz is closed to everyone, except for the handful of ships that Iran allows to sail through. Refineries in the United States are major beneficiaries of that disruption.

But there is another profound shift in the global energy markets, though, and that also is a boon for US energy companies. Before the War on Iran, the United States made up almost all of the growth in the LNG market. In 2025, 93% of the new liquefied natural gas coming on to the market was of US origin.

Just ten years ago, the United States’ exports of LNG were statistically zero. That’s the blue line. In 2015 Australian exports of LNG were 1.5 trillion cubic feet per year, and Qatar at about 3.8 tcf. Fast-forward 10 years, and Qatar had nudged up slightly, while US exports increased over 200 times:

Europe was the primary export destination for over two-thirds of the American exports of LNG.

It was two transformations that made all that go—all those European imports of American LNG. New fleets of ships that carry liquefied natural gas meant that the natural gas market is no longer regional. Natural gas used to flow only by pipeline, and that meant markets that were stitched together, regionally, and different markets had different prices.

With the liquefaction process for natural gas, and the advent of giant ships that could move that around, and so today you don’t need to build a pipeline to a natural gas supplier to buy it. A ship can bring it to you.

And that was the thinking of Europeans, who switched off their purchases of Russian natural gas, that came though pipelines West. They would just buy from suppliers in the United States.

In 2025, exports of Russian LNG fell, at least those export volumes which are visible to Western analysts. But Europe meanwhile increased their imports of natural gas by 29%--by 3.8 billion cubic feet per day. Output from the United States, plus Qatar, was sufficient, barely, to keep the lights on in Europe.

But in 2026, everything is different. The business model for the American natural gas industry now centers on liquefaction and shipping—LNG buyers and traders can buy US natural gas, load it onto a ship, put it on the ocean and wait for bids to come in. The ship can go to any market. That’s a key point: most producers don’t have much spare capacity, and they cannot quickly scale up new production.

This report is dated 2 April, so after just one month of fighting in the Persian Gulf, the LNG market was already shifting. American shipments to Asia more than doubled, from February to March, even though at that time—four months ago--Europe was still the largest buyer of US LNG cargoes.

By June, countries in Asia were gobbling up whatever LNG they could get, and more ships headed this way instead. The Spot Market is for immediate delivery; spot market buyers say, I need this right now, here’s my money and my address, and Pakistan is paying the highest prices in years, to bring it over. Bangladesh is doing the same.

And that is a result of Qatar being taken out of the market, entirely. Until four months ago, Qatar was a major global supplier of LNG. Now it is Qatari exports of natural gas which are statistically at zero. Here is the chart for prices paid for LNG in Asia, and we see is a vertical spike from around $10 per million BTU to $25, that seemed to happen in a single day:

That was the day that Iranian drones and rockets took down the Ras Laffan refinery in Qatar, which said a few hours later that they were declaring force majeure on outstanding natural gas and fertilizer contracts.

Asian economies understood immediately that the only way they would get through the summer with their air conditioners on was to place emergency calls to American LNG suppliers, and to raise prices on electricity at home to reduce consumption. Long-term they want to diversify their energy needs away from everybody, and that means they are reliant in the short term on China for the renewables technology and hardware to get new solar and wind projects up and running.

For Europe, everything is falling apart at the same time. Qatari production is offline for months at least, maybe years. New and expanded Russian pipelines are sending their natural gas to China.

And now Asian countries are indifferent to price and are scooping up American LNG. Asian imports are at their high for the year, while European imports hit their lowest level in two years.

Prices jumped around during the so-called ceasefire, when it was hoped that Qatar would get some LNG production and exports going, but that didn’t last, and so prices shop up again. Even China was a buyer at the relatively low level during the ceasefire, but analysts now expect that they won’t be buying more at these higher prices,

Singapore, South Korea, and Japan will have no choice, however. It’s a seller’s market, and the US is a seller. Japanese imports of LNG from the United States will be almost a million tons this month, 15 times higher what it was back in February. In early February, Japan signed a new supply agreement with Qatar, which previously in 2025 had supplied 3.6 million tons of LNG to Japan. The war on Iran started in late February, and in early March the Qatari LNG industry effectively ceased to exist.

So ships full of LNG that used to go between the United States and Europe, are going to Asia instead. And that is happening at the same time Europe needs to refill their natural gas reserves, to get them through the winter. The current storage deficit is 158 terawatt hours, or the energy demand equivalent of 15 million households for a full year. That’s how short Europe is, right now. Only way out is to pay spot market prices, which are no doubt going even higher.

Higher for longer prices for LNG is great news for the United States. It costs energy companies about the same today as when the war started, to buy natural gas itself. Those profit margins are enormous, then—and US energy companies can scoop up that cheap supply, liquefy it, and ship it to anyone paying spot prices.

LNG will be the second-largest export industry in the US within five years.

Be Good.

Resources and links:

The U.S. Supplied 93% Of Global LNG Export Growth In 2025
https://www.forbes.com/sites/rrapier/2026/07/19/the-us-supplied-93-of-global-lng-export-growth-in-2025/

Global LNG trade volumes reached record high in 2025
https://www.hellenicshippingnews.com/global-liquefied-natural-gas-trade-volumes-reached-record-high-in-2025/

US LNG exports break record high as Middle East war disrupts global supply
https://www.reuters.com/business/energy/us-lng-exports-break-record-high-middle-east-war-disrupts-global-supply-2026-04-01/

US Natural Gas Futures
https://finviz.com/futures?p=d&t=NG

Pakistan Shells Out Record Sums for Spot LNG as Qatar Supply Falters
https://oilprice.com/Latest-Energy-News/World-News/Pakistan-Shells-Out-Record-Sums-for-Spot-LNG-as-Qatar-Supply-Falters.html

Pakistan to Buy More LNG as It Sees Longer Hormuz Conflict
https://www.bloomberg.com/news/articles/2026-07-17/pakistan-plans-to-buy-more-lng-as-it-sees-longer-hormuz-conflict?srnd=homepage-americas

Iran War Forces Cash-Strapped Asian Nations to Buy Expensive LNG
https://www.bloomberg.com/news/articles/2026-07-21/iran-war-forces-cash-strapped-asian-nations-to-buy-expensive-lng

Asia's LNG imports recover, drawing cargoes from needy Europe
https://www.reuters.com/commentary/reuters-open-interest/asias-lng-imports-recover-drawing-cargoes-needy-europe-2026-07-13/

S&P Global Energy: LNG to become second-largest net export industry in US within 5 years
https://www.ogj.com/general-interest/economics-markets/news/55391416/sp-global-energy-lng-to-become-us-second-largest-net-export-industry-within-5-years

QatarEnergy secures long-term LNG supply deal with Japan's Jera as demand surges
https://www.reuters.com/business/energy/qatarenergy-signs-27-year-lng-supply-agreement-with-japans-jera-2026-02-03/

Retail electric rate increases outpace inflation with prices set to rise higher
https://www.utilitydive.com/news/retail-electric-rate-increases-outpace-inflation-with-prices-set-to-rise-hi/825391/

QatarEnergy expects 3-5 years to repair LNG facilities after strikes
https://www.spglobal.com/energy/en/news-research/latest-news/electric-power/031926-qatarenergy-expects-3-5-years-to-repair-lng-facilities-after-strikes

EU agrees to permanently stop Russian gas imports and phase out Russian oil
https://ec.europa.eu/commission/presscorner/detail/en/ip_25_2860

EU countries give final approval to Russian gas ban
https://www.reuters.com/business/energy/eu-countries-give-final-approval-russian-gas-ban-2026-01-26/

China and Russia strengthen gas relationship but there are some caveats
https://globallnghub.com/china-and-russia-strengthen-gas-relationship-but-there-are-some-caveats.html

Despite massive capital commitments by Western governments and the Pentagon, few projects are yet underway to produce critical minerals for weapons makers.

China's export bans on gallium and other key materials have demolished supply chains for arms suppliers.

Now the War on Iran is liquidating arsenals far faster than the munitions can be replaced, and policymakers have pledged billions of dollars to build out new sources of supply.

But the economics and pricing of the metals will always be a concern: Chinese costs are just far lower, and companies need long-term price guarantees to begin new mining projects.

The refining and purification processes also add years to the actual delivery timelines.

Report:

Good morning.

This is the stock chart for Alcoa, the Aluminum Company of America. The company is as valuable today as it was three years ago, in early 2023. Going back even further, investors who bought Alcoa in 2018 are back to where they started. The company does pay dividends, under a percent or so. So most investors were better off putting their money into a money market account, than buying Alcoa shares.

And that wasn’t supposed to happen to American industrial companies in general, and for Alcoa specifically. That’s because Alcoa, specifically, should be doing much better.

The Pentagon is in desperate need of more gallium to build missiles and radars, gallium is a by-product of the aluminum mining and refining industry, China has cut off exports of gallium from its aluminum companies, and the Pentagon contracts are going to fall right into Alcoa’s lap, if they can get gallium production up and running.

Consider these two headlines, both from yesterday. The first comes from the White House. President Trump signed executive orders that may as well have been written by Alcoa lobbyists. Pentagon defense contractors typically get waivers from the restriction to source their raw materials and components only from friendly sources. Trump’s first EO makes it much harder for that to go on. Alcoa has large operations in the United States and Australia, so they don’t need those waivers to sell to weapons makers; but other companies do require those waivers.

The second order is for new tariffs and incentives to increase aluminum production in the United States.

Headline number two comes from Alcoa itself. They are cutting their forward guidance for production of aluminum by at least 200,000 tons for 2026, and also said that expenses will be higher than they thought for the year.

But that second part shouldn’t matter, because Alcoa is perfectly positioned, at least in theory, to take advantage of China’s export bans on the gallium, and the Pentagon is a money-no-object customer. China’s market share of the global gallium market is 99%, and gallium prices are rocketing higher ever since China’s export bans were announced.

The gallium shortage is an urgent problem for Western militaries, because gallium is so critical in radar systems, communications, and electronic warfare platforms. Policymakers in the United States are suddenly aware of the problem, now that the Pentagon is blowing through their arsenal of weapons far faster than they can be replaced, and without gallium they cannot be replaced anyway.

But the same chemical properties that make gallium so valuable for weapons makers, also make it attractive for civilian high-tech industries: Semiconductors and civilian telecom services. China’s the only country building 6G systems, but they’ll need a lot of their gallium to stay at home to get that done.

In response the United States has abandoned free-market capitalism and is buying stakes in mining and exploration companies. The Pentagon now outright owns gallium production projects, and is on the other side of the table as a huge customer. As of February they had committed over $2 billion in a group of companies in the United States. But those projects are still early in development.

The most advanced gallium production project currently underway is in Western Australia, and is an Alcoa operation. Project managers are aiming for an opening date later this year, and with hopes to eventually scale to 100 tons per year. Margins for gallium are much higher than for aluminum, especially at these record-high price points. All very bullish for Alcoa, then.

Here is where things get tricky though. Gallium production just costs a lot more, when performed outside China. Production costs in the US are higher than China’s by at least 20%, so when prices fall, American companies are losing money a long time before any losses are felt by Chinese firms. New environmental regulations can be written, and likely will be on the first day of the next presidential administration.

Developers of the project in Western Australia hope that none of that will affect them. The partners are guaranteed access to gallium supply, and the implication here is that even if gallium prices fall below the production cost, government buyers will guarantee profits for all concerned.

Alcoa will build and operate the plant, and the United States, Japan, and Australia are putting in capital. Here we find a lot of conditional language, again—the plant “could provide” “up to 10%” of the current global supply. Construction activities “are expected to begin” after the site is ready. If none of that sounds very definitive, this one isn’t going to be any better. The plant will yield “about 60 tons of gallium” and “could be up and running as soon as the first half of next year.” So could be some time before 1 July 2027. That “could be followed” by a second phase, and it’s only after that is done, that Alcoa gets to that 10% target for global market share.

All that said, Alcoa may be in a better spot than any other Western company, to break the dependency on China for gallium. The governments of the United States, Japan, and Australia are all-in, critical mineral projects are being fast-tracked for approval already, and the Alcoa project in Australia is turn-key ready since it is already a major producer of aluminum.

So what’s the problem? Why are investors selling shares instead of buying more? And when we look at the time-to-market for that new gallium production, they’re still years away. Even though everything is going smoothly so far.

Phase I is already done. Exploration, surveying, and mining are already complete. The refinery is in place, and gallium is already being produced; Alcoa just needs to finish up the sitework to process the material they’re already piling up.

Starting with Phase II, investors begin to understand why American aluminum producers abandoned the gallium business in the first place. A specialized extraction facility needs to be built and brought online to separate gallium ions from all the other junk coming out of the ground. That “could be operational” by the middle of next year, and producing gallium that is 99 to 99.9% pure.

But that’s not nearly pure enough, which brings us to Phase III. Further refining is required to get to “Six Nines and Seven Nines” purities for the gallium, because it’s only at those levels that the gallium is usable by industry. Australia doesn’t have refineries for those processes, so it will be shipped out to places that do—probably in Japan or in the US. That adds another three to six months.

For Phase 4, it’s another year to year and a half: that high-purity gallium is processed into gallium arsenide or gallium nitride, then sliced into wafers, and turned into other things. They call themselves the Department of War, now, and they require heavy testing of those materials before they are put into multibillion dollar weapons platforms.

So the good news is that it’s usually a decade to bring a new mine online. The bad news for arms makers is that even if everything continues to go perfectly well down in Australia, the new supply chains for gallium won’t be formed for at least three years.

But the other bad news, is the supply chains for everything else. That particular Alcoa project in Australia is far along, relatively, and may in fact be delivering weapons-quality gallium to the Pentagon in 2029. But gallium is just one of the critical minerals that go into building weapons, and China has export bans on most of those too.

From 2021 through 2025, the United States blew through 15 years of production of Tomahawk missiles, in just five years. Then came the War on Iran, and four days after that kicked off a “Tomahawk missile shortage” looked inevitable, and a week after that the US military was running out. Savvy equity investors can do what I just did—take an hour or so to learn that the Pentagon’s appetite for gallium is total—they’ll buy all they can, today and for years to come.

But even if Alcoa gets their 100 tons a year of gallium out of the ground in Australia and refined in Japan and shipped to the United States so Raytheon can build more Tomahawks, RTX still has to get new supply chains up and running for the graphite, tungsten, neodymium.

But investors know that if Raytheon can eventually get them, and can build their missiles again, they can name their price. So their chart looks a lot better.

Be Good.

Resources and links:

Alcoa Greenlights Gallium Plant in Australia With U.S. and Japan Backing
https://oilprice.com/Company-News/Alcoa-Greenlights-Gallium-Plant-in-Australia-With-US-and-Japan-Backing.html

Australia, Japan, the United States and Alcoa Announce Final Investment Decision for Gallium Project in Western Australia
https://news.alcoa.com/press-releases/press-release-details/2026/Australia-Japan-the-United-States-and-Alcoa-Announce-Final-Investment-Decision-for-Gallium-Project-in-Western-Australia/default.aspx

Alcoa greenlights Australia gallium plant with US, Japan and domestic backing
https://www.reuters.com/business/energy/alcoa-greenlights-australia-gallium-plant-with-us-japan-domestic-backing-2026-07-14/

Australia strengthens global gallium supply chain with major Alcoa investment
https://minerals.org.au/resources/australia-strengthens-global-gallium-supply-chain-with-major-alcoa-investment/

Alcoa Explores Feasibility of Gallium Critical Mineral Production in Western Australia
https://news.alcoa.com/press-releases/press-release-details/2025/Alcoa-Explores-Feasibility-of-Gallium-Critical-Mineral-Production-in-Western-Australia/default.aspx

Critical Mineral Gallium Sees Increased Project Activity
https://www.industrialinfo.com/news/article/critical-mineral-gallium-sees-increased-project-activity--360245

Pentagon’s US Gallium Strategy Targets 2026 Production Independence
https://uscriticalmaterials.com/pentagons-us-gallium-strategy-targets-2026-production-independence/

Trump Signs Orders On Aluminum And Defense Supply Chains — AA, KALU, CENX, MP Stocks In Focus
https://finance.yahoo.com/economy/policy/articles/trump-signs-orders-aluminum-defense-234722200.html

Alcoa cuts production outlook, citing refinery issues
https://finance.yahoo.com/markets/commodities/articles/alcoa-cuts-production-outlook-citing-121100153.html

Chinese Publication Claims U.S. Has Two Months of Rare Earths Left
https://finance.yahoo.com/energy/articles/iea-warns-china-rare-earth-130600541.html

Gallium nitride as a key material for the next generation of wireless technology
https://wiot-group.com/think/en/articles/why-gan-makes-6g-satellite-communication-possible/

China begins large-scale delivery of gallium chips for space-ground 6G network
https://www.scmp.com/news/china/science/article/3356321/china-begins-large-scale-delivery-gallium-chips-space-ground-6g-network

New mines take nearly 18 years to build in 2020-23
https://theoregongroup.com/investment-news/new-mines-take-nearly-18-years-to-build-in-2020-23/

US backs companies to restart domestic gallium production after 40-year gap
https://www.miningreporters.com/noticia/news/2026/04/us-supports-domestic-gallium-production-critical-minerals

Report: US burned through half or more of critical missiles interceptors
https://responsiblestatecraft.org/stockpiles-iran/

Engineers in China's West have built a new solar plant that generates electricity after sundown.

The facility uses liquid salt to store excess energy captured during the day, which is later released as steam, which turns turbines to generate electricity.

In this way, grid managers in Xinjiang "flatten the duck": the mismatch between solar power production and electricity demand, which occurs at different times of the day.

China's vast network of high-voltage transmission lines are crucial, by delivering power generated in far-flung areas to population centers in China's East.

Report:

Good morning.

Engineers in Xinjiang are deploying solar plants that produce power at nighttime. This new plant in the Gobi Desert uses molten salt to generate steam, which turns turbines which in turn produce electricity for eight hours after the sun goes down.

It’s one gigawatt, which is equal to the power demands from about 800,000 households, and this plant is novel, in that it does not use batteries to store the excess power that is generated during the day.

The problem with solar power is obvious—we use electricity all the time, but the sun is only shining half the time, at the most. On cloudy days, direct sunlight is hitting the panels at lower intensity. Putting these power plants in the desert goes a long way to solving that problem, but creates another: people don’t live there.

The giant population centers of China are mostly along the coast, so whatever power is generated there in Xinjiang needs to be sent across China to where people need it, and where it’s needed 24 hours a day, not just when the sun is up in West China.

This new plant is the biggest in the world that doesn’t use batteries to store excess power; it uses molten salt, instead of batteries, as a storage medium. Batteries cannot yet do what Chinese power engineers need them to, which is to store enough power, affordably, and then to discharge them at night, affordably.

Those are the realities that present a major problem for electricity grids, across the world. The intensity of sunlight dictates how much energy is produced, directly, by the solar element of the plant. And as a power grid builds out more and more solar capacity, that imbalance widens, between power produced during the day, compared to at night.

The result is called the “Duck curve”. It’s the “sharp mismatch between peak solar generation and peak energy demand”. When we put the data on a graph, the curve looks like a duck. The more solar-intensive the energy source mix, the steeper the curves. In the morning, energy demand spikes, as the human population wakes up.

The intensity of the sunlight builds slowly, and doesn’t peak until a few hours later, resulting usually in huge oversupply: the energy produced by solar around mid-day equals electricity demand, and excess storage is possible, theoretically. Then the sun goes down, at the same time billions of people leave work and go shopping or home.

That’s the time of day, when the stress on a power grid is the most acute. From about 5PM through 8PM, when power demand is far greater than what is coming off the solar panels, which by then is zero.

There are several factors, though, that this Xinjiang plant has working strongly in its favor, and also a couple of things that might challenge the economics of the project, in the future. There are 260,000 tracking mirrors, that cover 800,000 square meters. They follow the sun and reflect the sun’s rays, which are concentrated to heat salt to 550 degrees.

Then the molten salt goes on to create the steam which turns the turbines to produce electricity. Liquid salt is already a medium for that power generation system; it’s used in fossil fuel plants already, even nuclear plants, where molten salt is pumped through the reactors to absorb heat, which is then used, again, to turn turbines.

The reflectors at the Hami plant are flat. That makes them less efficient than curved mirrors. But flat mirrors are less expensive to build and maintain. Efficiency drops by more than half, but the plant managers believe that the far lower upfront and ongoing maintenance costs justify the lower solar efficiencies. The data on for the levelized cost of electricity figures will come in over time. But plant developers estimate that the power will produce at the same cost as Chinese coal.

Advantage number two is geography. China is one single time zone, but could just as easily be four. China is enormous, and the sun is shining brightly in Xinjiang province long after the sun has gone down in East China. That is power that can still be fed directly into the grid, and that’s because the infrastructure is already in place, to transport that electricity produced in Xinjiang to where it’s needed.

China’s ultra-high voltage direct-current network is the largest in the world, and it’s what makes the whole system possible, and also helps explain how China’s electricity mix is more diverse than almost anyone else’s, and how electricity prices here are falling, year over year over year, despite booming demand for the power:

The new plant is on just one of those lines in that HV-DC network, and displaces 38 million tons of coal demand elsewhere on the grid. And there is another plant coming, which is 50% larger, and will be located nearby the plant that just opened.

The economics of these plants are very favorable, today. But there are some unknowns that may change the math. Flat mirrors do cost less to build and maintain than curved mirrors, but here are a quarter of a million tracking mirrors, with lots of moving parts, and we don’t have a lot of historical data yet to know the long-term maintenance and repair costs for those at commercial scale.

We should figure those costs will be a lot lower in China than anywhere else. But the second challenge may come from further improvements in battery storage, and falling costs there. Battery efficiency is rising, fast, while their costs are falling, fast. It took decades for that to play out, but over time we see the results: fifteen years ago battery pack prices were 12 times higher, compared to today. That “has in turn enabled the batteryification of everything.”

For now, it is more cost-effective for new, large solar farms in West China to use molten salt to store the excess energy that they collect at those low points in the duck curve. But as battery prices continue to fall, the economics of that might change. So the overall costs of operating those systems are likely to decline, over time, and whether the excess power will heat up salt to later drive big turbines, or stored in big batteries, it will be Chinese companies that build them.

Any country with lots of empty space and lots of sunlight can transform those areas into power plants, and they will turn to Chinese engineers and companies to build them. The solar panels, the turbines, all that hardware for building out the long-distance power transmission networks—all that business will go through here.

Be Good.

Resources and links:

World’s largest hybrid solar plant stores energy in molten salt to supply power at night
https://interestingengineering.com/energy/worlds-largest-hybrid-solar-plant

China's 1-gigawatt Gobi solar plant runs 8 hours after sunset — with no batteries
https://www.thecooldown.com/green-tech/gobi-solar-plant-china-sunset-power/

Dispatchable Solar Clears 1 GW: China’s Gobi Desert Plant Runs After Sunset
https://www.techtimes.com/articles/319512/20260702/dispatchable-solar-clears-1-gw-chinas-gobi-desert-plant-runs-after-sunset.htm

China’s largest PV-CSP hybrid project enters commercial operation
https://www.pv-tech.org/chinas-largest-pv-csp-hybrid-project-enters-commercial-operation/

California Duck Curve Getting Deeper With Solar Growth
https://cleantechnica.com/2023/07/07/california-duck-curve-getting-deeper-with-solar-growth/

The Solar Power Duck Curve Explained
https://elements.visualcapitalist.com/the-solar-power-duck-curve-explained/

Chart: Lithium-ion battery prices fall yet again
https://www.canarymedia.com/articles/batteries/chart-lithium-ion-battery-prices-fall-yet-again

China Generated More Electricity in 2024 Than the U.S., EU, & India Combined
https://www.voronoiapp.com/energy/-China-Generated-More-Electricity-in-2024-Than-the-US-EU--India-Combined-5260

China’s Richest Regions Cut Electricity Prices to Protect Industries
https://www.energyconnects.com/news/gas-lng/2025/january/china-s-richest-regions-cut-electricity-prices-to-protect-industries/

Energy policy of China
https://en.wikipedia.org/wiki/Energy_policy_of_China

China has built 46 Ultra-High Voltage lines
https://www.reddit.com/r/MapPorn/comments/1t7s58k/china_has_built_46_ultrahigh_voltage_lines/

Intelligence analysts note dramatic, and sudden, advances in Iranian missile and drone capabilities.

During last year’s war on Iran, IDF and American forces successfully “spoofed” Iranian drones and missiles, which relied on GPS navigation systems.

But after that conflict, Iran switched to Beidou, a Chinese satnav system that cannot be jammed by Western militaries.

Beidou is also more accurate than GPS in most of the world, including in the Persian Gulf region.

Iranian drones and missiles are now threading through air defenses, and taking down critical, high-value targets across the Gulf States, who also rely on GPS.

Ironically, China’s motivation to build the Beidou system began over thirty years ago, when the Pentagon switched off GPS to a Chinese container ship bound for Iran.

By 2020, Beidou leapt past GPS in coverage and accuracy in most of the world.

Report:

Good morning.

This all started over 30 years ago. This is the Yinhe, a Chinese container ship. It was enroute to Iran, when the Central Intelligence Agency claimed that the ship was carrying material to build chemical weapons. The United States told Middle Eastern countries to refuse entry to the Yinhe, and they agreed. The ship was stranded in the Indian Ocean for weeks, while the US demanded the ship return to China.

Chinese authorities inspected the ship, and found no evidence of what the CIA said was aboard. American military aircraft and ships were dispatched, and the US “disabled the Chinese vessel’s access to GPS”. That caused the Yinhe to lose navigation, and forced them to drop anchor, where it sat for over 3 weeks.

Negotiators agreed to let the ship dock in Saudi Arabia, where representatives from the United States, China, and Saudi inspected the vessel, and certified that no hazardous cargo was on board.

China demanded compensation for economic losses, and American officials said no to that, and even refused to apologize, saying that even though the intelligence was bad, that the US had “acted in good faith”.

Those events, transpiring over the course of a month or so, impelled China to develop its own satellite navigation system. At the time, GPS was a monopoly, and the world just learned that the United States could switch it off and strand ships mid-ocean. Chinese media even today point to the Yinhe incident as their motivation for developing their system, called Beidou.

Beidou System 1 was completed in 2002, and -2 was rolled out in 2012. In 2020, BDS-3 was launched, and today China’s Beidou is more accurate than GPS in many areas of the world. The map below preceded the introduction of BDS-3, and since then Beidou’s coverage has only grown:

The Chinese system now uses 56 satellites; many more than GPS. Beidou also deployed over ten times as many monitoring and ground stations across the world, especially in the Global Majority Countries, which dramatically improves the accuracy of Beidou compared to GPS in those areas of the world. So with the deployment of BDS-3 in 2020, Beidou had superior coverage over GPS in 165 countries. Said another way, GPS outperforms Beidou in just 30 countries.

So in countries outside North America and Western Europe, Beidou is more precise, and presents an alternative that cannot be turned off by the Pentagon. And we see again how the Yinhe Incident is used by proponents of the Beidou system to sell it. The United States jammed the navigation system of a civilian container ship, which had to drop anchor in the middle of the ocean and wait for the US Navy to tell it where to go. Every country that relies on GPS for their navigation is vulnerable.

That vulnerability is what drove China to build Beidou, and it’s what drove Iran to ditch their GPS for Beidou after the war last year. During the 12-day war last summer between Iran and Israel and the US, the Israeli military was successful in jamming Iranian navigation systems, and so after the conflict Iran went shopping for alternatives:

By the time this round began, in late February of 2026, Iran had dumped GPS and moved over to Beidou. These reports are from March—the early days of the conflict, and already it was apparent to intelligence services that the switch to Beidou marked a big upgrade in Iranian capabilities. The Israeli electronic warfare strategies that worked in 2025 suddenly did not anymore. The military-grade BDS-3 is “essentially unjammable”, and uses advanced and complex freq-hopping technology and messaging systems that prevent spoofing

.So when Iranian drones were launched toward Israeli targets previously, the IDF could send false targeting data to the inbound munitions and steer them away. That was before. Now, the Beidou system filters out that interference, and the positioning success rate holds at 98%.

Those are anti-electronic warfare improvements; Electronic counter-countermeasures, which are on the defensive side. But intelligence analysts believed, early in this year’s conflict, that Iran had also dramatically improved the offensive performance of their missiles and drones.

Beidou-3’s electronic architecture is built to minimize interference, from all sources, and eliminate errors in real time, while in flight. The Circular Error Probability drops to under 5 meters for missiles using Beidou, and that allows for an entirely new combat doctrine. Fewer missiles can be launched to destroy the same number of targets.

The Beidou upgrade not only made Iranian missiles and drones unjammable, but the on-board messaging system allows for real-time adjustments by controllers, up to 2000 kilometers away. If they detect an air defense unit, or a Patriot missile battery, or an enemy aircraft, commanders can simply transmit new flight instructions.

By combining Chinese satellite intelligence with Iranian kinetic weapons, Teheran built an intelligent kill chain that is completely outside Western technology.

The latest War on Iran kicked off on 28 February, and just two weeks later it was obvious to intelligence officials that everything was different, this time. This report is from 11 March, and Iranian missiles were much more accurate compared to just eight months prior. The US government can jam anyone on the GPS platforms, which it owns.

But that monopoly is gone, and Beidou users cannot be jammed. Beidou uses more satellites and ground stations than any other satellite navigation system, and so theoretically should be more accurate, when used as an offensive tool, and more resilient, defensively.

That is no longer a hypothetical: In just the first days, Iran’s drones and missiles had blown through Pentagon and IDF air defenses and taken down significant, high-value targets. American allies across the Middle East – and the world -- concluded that there is, no longer, an American security umbrella, if the United States can no longer defend their own fleet headquarters and multi-billion-dollar radar stations.

Iran’s access to Beidou is game changer, and it’s obvious to the other Gulf States that host American bases, and use GPS themselves.

And by sharing their satnav technology with Iran, the Chinese assess the effectiveness of its systems against the newest-generation weapons platforms deployed by the Pentagon, and can field-test new technologies and fighting doctrines on a real battlefield.

And this all began with bad intel from the CIA, and a Chinese container ship, heading for Iran. Thirty years ago.

Be good.

Resources and links:

“Breathing Fire” After Yinhe Embarrassment, China’s Pledge To Counter U.S. GPS Reaches Key Milestone
https://www.eurasiantimes.com/gps-an-embarrassment-like-the-yinhe-incident/

The GPS Blackout That Changed Everything for China
https://www.bastillepost.com/global/article/5927187-the-gps-blackout-that-changed-everything-for-china

Iran turns to China’s BeiDou satellites to outfox Israeli anti-drone electronic warfare defences
https://www.intellinews.com/iran-turns-to-china-s-beidou-satellites-to-outfox-israeli-anti-drone-electronic-warfare-defences-430349/

Could Iran be using China’s highly accurate BeiDou navigation system?
https://www.aljazeera.com/features/2026/3/11/could-iran-be-using-chinas-highly-accurate-beidou-navigation-system

China’s Push for Satellite Cooperation in the Middle East
https://www.washingtoninstitute.org/policy-analysis/chinas-push-satellite-cooperation-middle-east

In 165 countries, China's Beidou eclipses American GPS
https://asia.nikkei.com/spotlight/century-of-data/in-165-countries-china-s-beidou-eclipses-american-gps

伊朗副部长：正在探索从GPS切换到中国北斗系统
https://m.guancha.cn/internation/2025_07_31_784997.shtml

Gulf Countries Confront Questions About Relying on U.S. for Protection
https://www.nytimes.com/2026/06/15/world/middleeast/gulf-iran-war-us.html

Iran reportedly destroys $300M US missile defence radar in Jordan
https://www.trtworld.com/article/6ddaf3c21548

How Iran Devastated an American Naval Base—and Caused a U.S. Recalculation
https://www.wsj.com/world/middle-east/iran-us-naval-base-bahrain-e87bbca3

Chinese-built Artificial Intelligence (AI) systems have closed the performance gap with models from Silicon Valley.

Demand for Chinese AI is booming, across global enterprises.

Chinese systems are open-source, and cost about a tenth of comparable platforms from the United States.

China is taking over the "token economy" of AI, and is "exporting tokens" to users across the world.

Today most US tech companies, even the largest ones, use Chinese LLM's.

Report:

Good morning.

Upon the release of DeepSeek’s Large Language Model early last year, we predicted that it would be banned in Western countries. DeepSeek’s performance was on par with the best LLM’s out of Silicon Valley, and it didn’t cost anything to use. It is also open-source, so can be deployed easily by tech engineers.

That release of DeepSeek closed the gap in performance between Chinese AI systems, and those of the leading American models. In just one year, the difference in performance dropped by over 75%. And our thinking was, that DeepSeek was so transformative, and such a threat to other AI systems like OpenAI, that Western policymakers would have little choice but to ban it, along with the other Chinese LLM’s.

Since DeepSeek, Chinese labs have released over a dozen new top LLM systems, and narrowed that gap even further. And our thesis rested on that simple math, that the market capitalization of Wall Street itself has been driven by the Artificial Intelligence theme, and upstart Chinese companies are producing models that perform just as well, and for a fraction of the cost, so Washington would inevitably ban Chinese models, just like they did with Chinese electric cars.

None of that happened, and Chinese LLM’s are taking over everywhere. China’s newest export boom is in the AI tokens used to power these systems, as these Chinese labs have effectively commoditized the technology.

A “token” is the smallest unit of AI input, or output, and counting up tokens is how the industry measures itself. It’s a tiny chunk of data, just a handful of characters. Most AI companies offer their basic services for free, to users who don’t use a lot of tokens. But for bigger companies and creators, they cost, and users pay to make queries, and to generate results. The output costs much more than what it costs for the user to ask the questions, and questions that are more complex burn up a lot more tokens and computing power.

Chinese models now are the top three LLM’s used for this work: Xiomi, Alibaba, and DeepSeek.

Here in China, token usage increased over a thousand times in just two years. Again, this is a measure of AI usage itself, so we can say that Chinese companies and individuals are using AI at over a thousand times the levels of two years ago. Overall, AI usage here is almost twice as high as in the United States, and Chinese Large Language Models are also booming, everywhere. Not only here.

At the beginning of last year, China had five of the top 50 most-used LLM’s; now it’s twenty. And for the top 20 most used models, Chinese AI processed 98 trillion tokens last month, compared to US models at 53 trillion. Token demand is soaring, everywhere; it’s just growing much faster in China. Token usage in the United States grew by 43% in a single month, but in China it more than doubled:

These data also led us to believe that lawmakers would slam the door on these Chinese models in the American market. Chinese labs deploy their models at a far lower cost, compared to the hyperscalers in Silicon Valley:

This year, Chinese CapEx for AI from their top names is estimated at about $100 billion; those five American companies will spend $764 billion. The forecast for 2027 is for over a trillion dollars in new capital expenditures for American AI, over eight times what Chinese tech companies plan to spend.

We’ll pull back here to point out that those massive increases in demand—here in China—is putting a strain on some companies in the industry. In the beginning, AI users were making simple queries. Then as these models gained popularity, so did the complexity of the tasks, which grew to 10,000 tokens, and now to over 50,000 tokens, on average.

Chinese AI providers are making more money; Zhipu’s revenues went up 60 times in Q1 compared to last year; Alibaba is the company behind Qwen, and their revenues are up 15 times just since the beginning of this year. The lion’s share of the profits, though, are still being realized by the hardware side; the chipmakers, at least for now. The model companies’ revenues are rising, and steeply. But so is their cost of compute.

That dynamic is causing some Chinese labs to raise prices; the cost to use Tencent Cloud increased by over five times in March, and Alibaba, Zhipu, and ByteDance also hiked prices.

DeepSeek, however, went the other way. Their latest version is priced at just a fourth of their introductory product, and they rolled out dynamic pricing that is aimed at corporate users, who use their models during the workday.

But even with these price increases, Chinese models just cost far less than those on offer from Silicon Valley, and explains those big jumps in the exports, we can say, of Chinese AI tokens. The LLM’s out of China are “90% as good at 10% of the cost”, and American firms are buying more tokens from Chinese companies. In early 2025, token demand from Chinese LLM’s was about zero. Even the release of DeepSeek didn’t move the needle much, but by the end of the year the secret was out, and it’s been a choppy but steady ride up to 46%, today.

In the end, the enterprise users are switching to the Chinese models, because of far lower cost, with little impact on performance. DeepSeek’s V4 costs 14 cents per million tokens, compared to ChatGPT 5.5 at $5.00. For the high-volume enterprise consumers, the difference in cost is orders of magnitude higher, and so now DeepSeek and Alibaba combined are over 30% of the total token usage across the world.

This report concerns how commercial real estate firms in the United States are migrating to Chinese models, and why. Processing a 30-page lease agreement costs a few dollars using a Silicon Valley LLM; using a Chinese model costs a few pennies. For big real estate companies that manage lots of leases, that’s a material impact to their financials.

The stories are piling up, now, of companies—even major ones—in the United States who are dumping LLM’s put out by Silicon Valley companies, that are just up the street. Token usage is going up, compute costs are going up, and companies have no choice but to switch over. Lindy was using Claude, and moved completely—100%--of its AI work to DeepSeek. Their cost curve “crashed to the ground”, the company will save millions of dollars, and using DeepSeek means their company will survive, instead of going under.

Be Good.

Resources and links:

DeepSeek will be banned: it's good, it's fast, and it's free. So it cannot be allowed.

Another week, another DeepSeek, and another insane valuation for OpenAI
youtu.be/mmdX3yjTVic

The AI Trade Hits Overdrive, Powering Stocks to Historic Gains
https://www.wsj.com/finance/stocks/ai-stocks-trade-e7b19a9f

Just a Handful of AI Stocks Are Carrying Everything. History Says It Doesn’t Have to End Badly
https://www.aol.com/articles/just-handful-ai-stocks-carrying-143519000.html

AI Stocks Drive Nearly All of S&P 500’s Gains, Data Reveals
https://finance.yahoo.com/markets/stocks/articles/ai-stocks-drive-nearly-p-094305210.html

What is ‘tokenomics’ and how would China gain the edge in artificial intelligence era?
https://www.scmp.com/tech/big-tech/article/3347495/how-china-could-dominate-ai-eras-tokenomics-vast-power-grids-and-low-cost-models

‘Token economy’ emerging as AI use soars in China, experts tell conference
https://www.scmp.com/tech/article/3359974/token-economy-emerging-ai-use-soars-china-experts-tell-conference

AI TRENDS | China AI Model Weekly Token Usage Tops U.S. by More Than Fourfold, OpenRouter Data Shows
https://www.binance.com/en/square/post/07-13-2026-ai-trends-china-ai-model-weekly-token-usage-tops-u-s-by-more-than-fourfold-openrouter-data-shows-344159634300961

China’s AI Models Process 98 Trillion Tokens, 85% Above US
https://tech.yahoo.com/ai/articles/china-ai-models-process-98-123726333.html

The AI token takeover in China
https://www.businesstimes.com.sg/startups-tech/technology/ai-token-takeover-china

AI’s token economy revolution creates new China tech winners
https://www.businesstimes.com.sg/companies-markets/telcos-media-tech/ais-token-economy-revolution-creates-new-china-tech-winners

Cheaper AI is better: Soaring bills are reshaping how businesses choose models
https://www.businesstimes.com.sg/startups-tech/technology/cheaper-ai-better-soaring-bills-are-reshaping-how-businesses-choose-models

Chinese AI Models Now Capture Up to 46% of US Enterprise Token Usage
https://finance.yahoo.com/technology/ai/articles/chinese-ai-models-now-capture-020440715.html

Chinese AI models are gaining ground with U.S. companies as OpenAI, Anthropic costs surge
https://www.cnbc.com/2026/07/07/chinese-ai-models-costs-us-openai-anthropic.html

Chinese AI Models Hit 46% of US Usage: What It Means for CRE Investors
https://www.theaiconsultingnetwork.com/blog/chinese-ai-models-us-usage-cre-investors-2026

Why 80% of US AI Startups Switched to Chinese Models
https://www.newline.co/@Dipen/why-80percent-of-us-ai-startups-switched-to-chinese-models--9b216c28

Airbnb CEO Brian Chesky Called Chinese AI Fast And Cheap. Now, Congress Wants Answers
https://www.forbes.com/sites/anishasircar/2026/05/21/airbnb-ceo-brian-chesky-called-chinese-ai-fast-and-cheap-now-congress-wants-answers/

Companies that buy directly from Chinese manufacturers enjoy substantial cost savings, compared to going through local distributors and big box stores.

But there are other major advantages. Companies who do so are assured of new supply, even during times of supply chain stress.

In the construction industry, strong storms and other natural disasters result in acute shortages of materials needed to rebuild.

Globally, the industry suffers from a severe lack of construction supplies and materials, and despite soaring demand for tens of millions of new homes, builders cannot bid for jobs without those supplies on hand.

China's industrial trade fairs attract tens of millions of visitors a year, many from abroad. Tariffs and freight charges are surprisingly irrelevant in most of their sourcing decisions.

This is a transcript, for the YouTube video here:

Report:

Good morning.

This week our group is in Guangzhou, for the International Building Materials Show, . It’s a huge fair, the biggest in Asia, so we’re here along with 200,000 others, and nearly 10,000 from overseas.

In our previous video we walked through real-world examples, of why property developers and homebuilders in G7 countries are here, or sending their representatives to Guangzhou this week. There are enormous cost savings, even for small companies, by working directly with factories in China to source products. And those savings make for a competitive advantage in markets in the United States and Europe, for companies who are bidding on jobs.

Simply by eliminating the middleman companies and local distributors, and the big box stores, translates right away to double-digit percentage savings in materials costs.

There are other advantages in moving up the supply chain, and those involve ensuring that your own company can get materials in the first place, at price points and on delivery schedules that you control. Costs are rising, and steeply, and especially across the product lines that are hit by higher tariffs:

Building contractors in the United States face these higher costs for plumbing, heating and HVAC equipment, and lighting fixtures. For anything coming out of Chinese factories and heading to the US, higher tariff rates apply. And construction companies are paying them. That’s to say that local distributors, or big box stores like Lowe’s and Home Depot pay inbound freight and customs fees, and pass along those higher costs to their local customers.

You’re paying these tariffs and freight charges anyway, just paying someone else to do the paperwork and mark up the price for taking the trouble.

But another major driver of the higher costs, besides those tariffs, is the massive boom in materials demand every time there’s a fire in California, or a hurricane on the Gulf Coast. Builders everywhere have lots of work to do, but they can’t get materials. Clever local governments and contractors should have bought in bulk, in advance, and just pay the bill for storage so at least the materials are there when needed. Most did not, and do not, so builders are only now looking for substitute materials that ARE available.

This story in North Carolina is typical of builders almost everywhere—long wait times for high-quality building materials and appliances, which slow down projects and build times for companies, and for cities.

Builders who source direct from China, then, have far better control over their input costs, and avoid the problems of stockouts almost completely. They know that they have more containers on the way, and so can compete for jobs that other builders cannot. So that explains why there are a lot of visitors here from North America, in Guangzhou this week.

And there are thousands more from countries, where tens of millions of new housing units are needed to satisfy demand, right now, from booms in their middle class. Indonesia is the 4th largest country in the world by population, and has one of the fastest-growing economies in the world. What’s more, the country is spending $40 billion to move their capital.

Vietnam is another; the government there is building over a million new apartments over the next five years.

Of all the countries that will grow their consumer class by double-digit percentages in the next five years, only one—Egypt—is not in Asia. And that emerging middle class in Asia—they want new homes.

But the housing crunch is everywhere. It’s global. South and Central America need to build 100,000 homes a day, every day, for the next three years to meet today’s demand. Mexico needs 800,000 new houses a year; builders in Colombia need to build 400,000 a year.

So it’s a worldwide problem, and lots of people from lots of companies in lots of countries are here asking mostly the same questions. We are business buyers, buying in bulk, and we need them put on a ship. The people who are here aren’t looking for a sauna or a spa for their apartment in Shenzhen. They build apartments in Boston, or Bogota, and need 20 a month. And it’s the same story for all the exhibitors here. They’re meeting with buyers who need 5,000 smart doors and 20,000 windows.

Whole-home construction companies are here for custom builds in luxury markets; you send them the plans, they build the house, send it to you, and your crew puts it together.

We used the example in our previous video, of companies that build patios and decks, and the companies here in Guangzhou sell billions of dollars’ worth of supplies for that industry segment, to over a hundred countries.

Windows and doors. One company made $380 million selling armored doors. Another has everything you’ll need to build a football stadium or a convention center. So the booths for the armored doors and the stadium buildings don’t get as much foot traffic as most of the others, but the customers who do talk to them have all the money in the world. Or they are agents for the people who have all the money in the world.

There is another huge section that is mostly for the other Chinese companies here. The construction materials manufacturing industry requires expensive and complex machinery, so that they can offer wider and deeper product selections, at low cost.

Manufacturers have Minimum Order Quantities. But with this specialized heavy equipment here, building materials companies can scale up new production of small and custom orders, and offer low MOQ’s to their customers. And that’s a common feature in these Chinese industry fairs, too—giant sections that are for Chinese manufacturers, mainly, who need the newest and best equipment.

And these industry shows are everywhere in China, and attract tens of thousands of international visitors, coming for the same reasons. The same supply chain cost dynamics that drive small – but growing building contractors, source their most commonly used materials directly from factories China, are also motivating companies in the maritime industry to do the same thing.

Same for toys.

The foreigners who show up to the Beijing auto show, for example, or especially to the aftermarket car parts show--they’re not looking to buy a new sports car, or a new muffler. They need a hundred cars a month, or a thousand transmissions a year.

Industry trade shows are still the best way ever invented, whereby it’s possible to see in just a few days the new products that are coming to the industry, and to meet personally with the engineers who build them, and the companies that ship them to wherever you are.

An example here, of a company that my own group hopes to work with, as an OEM. They build soundproof cubicles and workstations that can be set up in airports, for example. I see them all the time in Asia, paid to use one a few months ago, and just learned how much they cost and that the payback period on them is just a few months. Put them in a nice area with internet, and those things are a license to print money, and if money is one of those things that you like, it’s another reason to hit these industry shows, to learn of these opportunities before other people in your neighborhood do.

Be Good.

Resources and links:

Are higher construction materials prices the new normal?

https://www.bcis.co.uk/insight/are-higher-construction-materials-prices-the-new-normal/

Why are construction material prices rising?

https://www.constructionnews.co.uk/sections/long-reads/why-are-construction-material-prices-rising-14-05-2026/

The Battle for Recovery Supplies Is On in a Disaster-Strewn America

https://www.wsj.com/business/the-battle-for-recovery-supplies-is-on-in-a-disaster-strewn-america-46d191bf

Construction Costs on the Rise: Unpacking the PPI Price Surge

https://news.constructconnect.com/construction-costs-on-the-rise-unpacking-the-ppi-price-surge

IFC Scaling Housing Finance in Africa

https://www.ifc.org/content/dam/ifc/doc/2024/scaling-housing-finance-in-africa-factsheet.pdf

LATIN AMERICA RESIDENTIAL REAL ESTATE MARKET SIZE & SHARE ANALYSIS - GROWTH TRENDS AND FORECAST (2026 - 2031)

https://www.mordorintelligence.com/industry-reports/residential-real-estate-market-in-latin-america

Latin America will need to build 100,000 homes per day until 2030 to meet housing demand, warns the World Bank

https://inmobiliario.do/en/latin-america-will-have-to-build-100-000-homes-a-day-until-2030-to-meet-housing-demand-warns-the-world-bank/

Insight: The Top 5 Global Construction Markets

https://www.oxfordeconomics.com/resource/insight-the-top-5-global-construction-markets/

The World’s Largest Consumer Markets in 2030

https://www.visualcapitalist.com/the-worlds-largest-consumer-markets-in-2030/

https://www.china-toy-expo.com/en

https://www.chinabizgateway.com/china-trade-fairs-2026/auto-china-2026-beijing

The International Building Fair attracts tens of thousands of homebuilders and property developers to Guangzhou, along with thousands more sourcing agents.

Building materials and supplies are in shortage in most global markets. Soaring costs for land transport, and for warehouse services, mean that even small building companies can save hundreds of thousands of dollars per year, by directly sourcing their materials from Chinese factories.

Eliminating local distributors and box stores cuts product costs by up to half, including freight. It also eliminates the stockouts problem that is such a challenge to builders.

We run the numbers on three small- and medium-sized businesses. Should they source their products directly from Chinese factories? And should they use their own trucks to pick up containers at the nearest port of entry? Or should they outsource freight operations completely?

Report:

Good morning.

This week we are at the International Building Fair in Guangzhou, which is the biggest show in Asia for the construction and building industry.

There are 200,000 visitors overall, including 8,000 buyers from across the world from over a hundred countries. We’re all here to buy direct, from these Chinese companies, most of whom in turn have large manufacturing facilities nearby, here in Guangdong province. It’s convenient, then, for visitors here to visit the factories personally.

This is yet another feature of China’s industrial clustering policy—companies are deliberately grouped together, to share the same labor pools, raw materials supply chains, and logistics systems—inbound and for export.

So thousands of foreign visitors flew in to attend, and tens of thousands more companies are sending their China-based sourcing agents to the fair. This is Alexander, he’s from Brazil, and lives in Zhongshan, about 90 minutes away. That puts him next door to the factories that build half the furniture in the world in Foshan, and 80% of the world’s consumer electronics.

He also knows our channel, and told us that all the business his group does is in local currencies only—companies in Brazil deal in real, companies here in Chinese RMB, no US banks, no US dollars. Millions of dollars a month going through financial networks and systems that did not exist three years ago.

Kamal is back and forth between California and Foshan, and his team works with major developers in the United States and India. They build hotels, hospitals, restaurants, even amusement parks—turnkey, for the biggest hospitality brands in the world. They source everything from China, including the furniture and signage, put them in containers, and ship them to local construction crews.

And that’s why that 8,000+ number is misleading. Just in the cases of Alex and Kamal, they are just two guys, but represent dozens of companies, buying hundreds of millions of dollars in products every year.

Their careers exist because companies in their home countries need people here on the ground, who can do sourcing and quality control, and who live and work here in China full-time. They exist, in the case of this particular trade fair, because when construction companies and property developers across the world grow to a certain size, they make a lot more money by sourcing their materials directly from the factories who are here.

Let’s use three examples of typical small- to medium-sized businesses in the United States. We’ll go to Google and use their AI to help us. Example one: A company in Arkansas installs air conditioning units. Average home size is 1800 square feet, and they install 4 systems a week. Right now they’re buying the units from local suppliers, or a box store, and they want an estimate on what cost savings there may be, to buy directly from China, and whether they should consider a change to their supply chain:

Answer: Yes, probably. Estimated net savings are over $100,000 per year, and over $500 per installation. The company is doing 200 units a year, and buying directly from Chinese manufacturers means big cost savings at the manufacturer level, but of course now the company is paying for the transportation and tariffs that right now are paid by their wholesaler.

There are some other considerations—buying their AC units by container allows for 11 weeks of inventory for each shipping container, so they’ll need warehouse space available for that. And there are documents they will need from the Chinese factory, so they will be approved for the Arkansas market.

I added this question above to the AI agent, and shared it onscreen and it will save you time, because it breaks out the same, every single time we run the numbers. Most construction companies have their own trucks, and they ask us if they can save money by picking up their containers at the port when they come off the ship. This company has its own trucks, should they drive to Houston themselves, and pick up their shipment? Answer. On paper you might save some money. In the real world, you will not. We’re coming back to this later.

Scenario two. A company in Kansas City builds decks and patios. They use composite decking materials, do about 170 jobs a year, and a third of those include jacuzzis. The projects involving spas they price on a cost-plus basis. Average base project of $20,000, with a materials cost of $6,000. Should they consider sourcing those materials from China, yes or no?

Answer here is unequivocal, and they need to be here in Guangzhou right now. At those business volumes, they will put over $400,000 a year directly to their bottom line, by sourcing their decking materials and spas from factories here.

Those cost savings can go to profits, by maintaining present sales volumes and pricing to their customers, or they can serve as a key competitive advantage in competing for other work in the Kansas City market, by lowering their price.

I asked the same question as before: This company has their own trucks, should they go to the Port of Long Beach to pick up their containers? Answer to that one is a hard no, but they should look carefully into sending their trucks to the intermodal transportation yard to pick up there. Using their company trucks for that leg, back and forth to the railroad yard, might save over a thousand dollars a month, and $500 to $800 per container. That assumes the drivers and trucks aren’t otherwise committed doing something else more valuable, but we have an idea of what that number is.

That’s a good rule to remember for inland transportation and logistics—you never want to use your own trucks for ocean port pickups—don’t even think about trying to get into the Port of LA or Newark or Houston. But if there is an intermodal shipment by rail, if your trucks are compliant, then the math changes completely.

Scenario 3: a builder of apartments and hotels in Florida. Next year they will build 800 1- and 2-bedroom units in 10 locations, and want to know about direct sourcing of cabinets, flooring materials, and windows.

So we have another example of a company that is not a huge developer, building thousands of homes. They’re also not too small, and doing one-off builds. They have a standard bill of materials across most of their business:

Answer: Overall, sourcing from China will result in cost savings of $4,000 to $8,000 per unit, and at 800 units that is over half a million dollars in cost savings. So it is a firm “yes” on the cabinetry and flooring materials. Savings of 40-50% there by buying direct from China.

On the windows, they will realize a savings of 30-40%, but “proceed with extreme caution”. Florida has some of the toughest building codes in the country, and the windows and doors and the roofs need to survive major hurricanes.

Guangzhou is in South China, and hurricanes are called typhoons here, and these factories build millions of windows a year for climates that are just like Florida’s. The trick is to work with factories here who have the documentation, in English in this case, that can be shown to local building inspectors.

So in the case of this company, they should be here looking at the flooring and cabinet suppliers, and talking very closely with the factories here who have export experience in South Florida.

A few more important points. Building contractors and homebuilders already know the local building codes and regulations that need to be followed, to get projects approved by inspectors. And the factories here in Guangdong have deep experience building for developers across the world, and in compliance with all those building codes.

And they are already supplying materials to your market, right now. These are factories your company is already buying from, but via middle men and the big box stores. And the companies that are here, buying direct, faced the same math problems we just ran earlier. The economics of supply chain management argue hard against using distributors for products that your business buys and consumes in bulk.

For what we mean, consider these charges from Amazon, for their stores. Amazon runs a program called Fulfillment By Amazon, or FBA. It’s an end-to-end system of logistics and delivery, order fulfillment, and warehousing. Amazon has one of the most efficient inventory management systems in the world, and millions of sellers are on the FBA platform, who use Amazon to handle their product inventories.

This is their fee schedule, to do that work for e-commerce companies. And there are very high fees for large and bulky items. There are also high handling fees for heavy items.

Bulky products take up a lot of shelf space, which is an opportunity cost problem, and Amazon charges their stores for that, which are passed along again to the end buyer.

Heavy products need special equipment to move them off one truck, on a shelf, and then to another to ship it to the final customer, and the end buyer pays for that. Lowe’s and Home Depot have those same problems, and so do specialty distributors. They unload a container, break open the pallets, store the products in their warehouse, wait for orders to come in, load them onto trucks—either theirs or yours—and pass along their costs for all that, with a high markup.

Building materials are heavy, they are bulky, and need to be handled carefully, often by two or more people, or even equipment. Your company is doing that work, now, in your own warehouse. And that is where those savings come from, when just sourcing these materials yourself. Your shipping costs are going higher, as a line item—you’re paying to send them from China, instead of from down the street. But your product costs overall drop by between 30 and 50%, including the shipping.

This show is for the building trades, and for companies across the world who source directly from the factories here in China who manufacture the construction materials and supplies. But those same inventory management and supply chain economics that inform homebuilders and property developers in their businesses, are also applied by companies in other industries, and explains why those executives head to other trade shows here in China, and arrange for direct sourcing and shipping.

And that leads to a final point, which is that some of the most important people you work with are the shipping agents. When your company moves to sourcing products directly from China, you’re likely making these decisions for the first time, and it’s a steep learning curve to buy customs bonds, for example, or to know whether CIF or DDP shipping terms are most appropriate for your company, and why.

Answering those questions intelligently involves a deep understanding of shipping costs, customs procedures, tariff schedules—and few companies have those resources in-house to know the answers. There are teams of people at every single one of these trade shows, and in every single industrial zone in China, who handle all that business for dozens of factories, and for thousands of foreign companies who buy from them.

We used an example earlier, of how sending your own company trucks to the port to pick up your own containers is a lousy idea, a hundred times out of a hundred. I feel the same way about this—especially in the beginning of that process for your company, use people here in China to figure out the best way to get your materials to you, and prepare all the documentation for the government agencies between here and there.

You will not save money, or time, doing that yourself until several inventory turns in, so don’t try it until later. By buying direct, your cost savings are hundreds of thousands of dollars a year, IF the customs paperwork is right at the point of entry, and IF the logistics run smoothly from the back door of the factory here to the front door of your company.

Let these guys here focus on those things, and your guys there can focus on building decks and apartments.

Be Good.

Resources and links:

International Building Show
https://www.cbdfair-gz.com/en

Production locations in Guangdong
https://www.guangzhousourcing.com/blog/procurement-services-2/production-locations-in-guangdong-which-kind-of-products-are-being-made-where-10

2026 US FBA fulfillment fee changes
https://sellercentral.amazon.com/help/hub/reference/external/GABBX6GZPA8MSZGW?locale=en-US

Graphics: Typhoons in China over past 70 years
https://news.cgtn.com/news/2019-07-12/Typhoons-in-China-IfupsSShaw/index.html

Urbanization and industrial clustering power China's rise in innovation

A Guide to Understanding International Trade Incoterms
https://www.accb.nyc/single-post/demystifying-incoterms-a-guide-to-understanding-international-trade

Contact info:
Alexander (Brazil-China)
WeChat is +86 173 2242 1357
WhatsApp +55 37 99868 2032

Kamal (US-India-China)
Kamalwalia@abssupplychain.com
+17078584711

Massive deposits of industrial metals and rare earths are over two kilometers below the earth's surface.

Identifying the location of those reserves requires revolutionary, ultra-high-powered antennas.

Breakthroughs in boring technology and materials science are necessary to recover those metals at depth, safely and at scale.

China has monopolies on both the antennas, and the large boring machines that make the deep mining of the Earth's lithosphere possible.

Report:

Good morning.

The whole world is now aware of the rare earth metals problem, and where they are. Three fourths of the most important raw materials that will power the rest of this century are in the Global Majority countries, and the demand for all these metals is accelerating. The BRICS bloc is growing, and so is the strategic value of their raw materials.

And the fact that those countries have such a dominant position in the rare earths industries means that it is they who can work together, and exchange technologies and capital, in ways that countries outside that bloc cannot. BRICS members are self-reliant, right now, and their position is only going to strengthen, over time, as new countries join.

That means that the so-called developed countries are already far behind, and are racing to catch up. At the G7 meeting that just finished, they agreed that no single country should be the source of more than 60% of their rare earth imports, and set that target for 2030. Past that, they hope to get it down to 50% as soon as possible.

Those targets were aimed at China, in particular, and in particular again on behalf of NATO weapons makers. This was the only topic that the G7 reps could agree on, given all the problems with Iran and the Hormuz closures and the trade wars. On this question though, “the members were all aligned” on the need to diversify their supplies of critical minerals.

China has firm control of the refining of these materials, with monopolies on several of them. But China is just one of those countries who, collectively, have most of the world’s reserves to begin with.

It is that problem that animates the high interest from Washington to take over Greenland. Rare earths are necessary for the manufacture of magnets, and China has a monopoly on the permanent magnets too, and makes nine times more magnets than the rest of the world, combined.

So companies are setting up in Greenland and signing mineral rights deals, in the hope of landing big Pentagon contracts. And under US law, time is running out. Six months from now, contractors cannot deliver any materials that are mined or refined or separated or melted or produced in China or in Russia or in Iran or in North Korea.

The Pentagon is doubtless going to ask for and get a waiver for that rule, just like they did for the law to “rip and replace” Huawei telecom gear from defense communications networks across the world. They’ll never make it by the 1 January deadline. But that rule makes for a traceability problem for Pentagon suppliers. They are required to know the source of every piece of metal inside every component that goes into a weapons platform.

The second problem is how to source enough new supplies, fast enough. And hauling the metal ores out of Greenland is just the first step—then comes the “messy middle”—the separating and refining – before the manufacturing process can even begin.

China has a problem too, though. Most of the world’s minerals aren’t near the surface of the earth, but deeper down. Geologists discovered that 85% of total deposits, and all of the largest ones, are along the fringes of the earth’s lithosphere. That is the Upper Mantle, and the crust, up to about 170 kilometers below the surface. Up until now, geologists poke around with hammers to learn where new mines are supposed to go.

But that’s not enough for what we’ll need from now on. Over the next 25 years, base metals demand will be higher than all the output from all the mines, in human history. To put that into perspective, this is the global mining output for just one single year, 2022.

Iron ore was 2.6 billion tons. All the industrial metals totaled 185 million tons. Put another way, iron ore extraction– steelmaking -- is 14 times larger than all the other industrial metals, combined. And production of all those industrial metals is 120 times greater than that of strategic and precious metals. And it is those metals that are in highest demand by heavy industry, technology, and defense contractors, and where we need to produce, again, in the next 25 years the combined historical production up to now.

And the only way to make that happen, is to go deep, to where the biggest untapped reserves are. The China Geological Survey estimates that they have over five times as much antimony up to 2 kilometers deep. In the case of tungsten, there is three times more at depth, than near the surface. That 3-to-1 ratio holds for other critical minerals, and for gold, zinc, and lead it’s four to one.

So the Chinese are building new technologies to go after them. This giant antenna is five times the size of New York city, and is used to identify ores and energy deep under the earth’s surface. So far, they’ve discovered the world’s largest deposit of gold, and vast new uranium reserves. Chinese geologists are deploying these massive wireless electromagnetic systems across the country, to find new deposits between 500 and 2,000 meters under the surface. There is a trade-off between power and accuracy, but high-powered systems are crucial to drown out the other signal interference.

All the ultra-high-powered systems in the field, globally, are in China. So the Chinese have monopolies now on the large antenna systems to find deep reserves. But that’s only half the problem.

Part II is getting down there. This is a 500-ton boring machine, used to drill a kilometer down. Mining is much slower and riskier the deeper they go, so mining engineers need to invent a different way. During the testing of that machine, efficiency dropped by half when it bumped into dense rock. First idea was to go right through it, then they learned that angling the tools broke the rock open faster. Then the next problem was how to get those chunks out of the way; they need to be brought to the surface, and for six months the engineering team couldn’t figure out how to do it. Apparently, they took some time off to visit a park in Hunan, saw a 2,000-year-old irrigation system, and built one just like it at their mine. Now it hauls up the equivalent of 10 truckloads at a time.

Then they had to figure out how to keep the sidewalls from caving in. Borehole walls tend to quickly collapse on themselves, so the researchers created a system of concrete reinforcements which can be deployed from the surface, while allowing for the drill to continue its work tunneling down.

This is deep mining at industrial scale, and it’s another race all its own. The countries that can do this work safely, in high volumes, will enjoy long-lasting advantages. And here we run into Chinese monopolies again.

Chinese firms have built over 4,000 tunnel boring machines, and have 70 percent of the world’s market share. China also has all – 100% -- of the ultra-high-powered antennas that can inform their geologists where to send those boring machines.

And let’s remember again the advantages these BRICS countries have, by virtue of their partnerships with each other—those are the countries that will share and use and further develop all these technologies, that China has monopolies on.

Be Good.

Resources and links:

G7 Aims to See China Supply No More Than 60% of Rare Earths
https://www.bloomberg.com/news/articles/2026-06-17/g7-aims-to-ensure-china-supplies-no-more-than-60-of-rare-earths

China is killing the race for critical minerals with the largest antenna on Earth
https://www.scmp.com/news/china/science/article/3325178/china-killing-race-critical-minerals-largest-antenna-earth

Mining revolution: China’s 500-tonne ‘underground carrier’ tunnels a kilometre to mine ore
https://www.thestar.com.my/aseanplus/aseanplus-news/2026/04/10/mining-revolution-chinas-500-tonne-underground-carrier-tunnels-a-kilometre-to-mine-ore

Tunneling machine highlights rise of Chinese manufacturing
https://english.news.cn/20251109/47a9230d643347faabc90178e82c930b/c.html

Global distribution of sediment-hosted metals controlled by craton edge stability
https://www.nature.com/articles/s41561-020-0593-2

All the metals mined in 2022
https://www.reddit.com/r/Infographics/comments/17w2ctk/all_the_metals_we_mined_in_2022/#lightbox

China finds uranium at ‘impossible’ depth: scientists
https://www.scmp.com/news/china/science/article/3179441/china-finds-uranium-impossible-depth-scientists

BRICS expands to 56% of world population, 44% of global GDP: Vietnam joins as partner country
https://geopoliticaleconomy.com/2025/07/04/brics-expansion-population-gdp-vietnam/

Geologists Identify Deep-Earth Structures That May Signal Hidden Metal Lodes
https://science.fas.columbia.edu/news/geologists-identify-deep-earth-structures-that-may-signal-hidden-metal-lodes/

The Pentagon and FCC have a big Huawei problem: there are no substitutes, and there's no more money

The Russian gas industry is under heavy sanction by Western governments.

Nevertheless, high volumes of Russian helium and other energy supplies find their way into global markets, via middlemen in China.

In the opening days of the Persian Gulf War, Iran hit Qatar's massive Ras Laffan gas complex with drones and missiles, immediately switching off a third of the global supply of helium for up to five years.

Helium distributors are rationing shipments, raising prices, and prioritizing deliveries to hospitals and the highest-margin customers in the tech industry.

Report:

Good morning.

The BRICS and Global South countries are re-organizing the trade flows of the world, and thereby working around sanctions from Western governments. And then the War in the Persian Gulf, and the closure of the Strait of Hormuz, have blown up supply chains across the non-BRICS countries.

Today we’re on the helium problem. There are Western sanctions on Russian producers of helium, so markets had to find another way to get it. Chinese firms stepped in and now serve as a conduit for helium gas markets, by buying surplus supplies and exporting them to other countries, including in Europe, who just pay higher prices for Russian helium by transshipping it via Asia first. Russian shipments to China last year were 38 million cubic feet per month on average, which was an increase of over 60% from 2024. Last December, helium exports from Russia to China were more nearly twice that, at 71 million cubic feet.

The demand for Russian energy never went away—Russia is a low-cost producer of almost everything. What the BRICS countries have done is build a trading system that gets around all those Western economic sanctions. The EU has 20 comprehensive sanctions packages targeting Russia.

But last month 20,000 delegates from 100 countries showed up in Saint Petersburg, to learn how to do business with Russia using the new financial systems set up in the new economic bloc.

Back to helium. China uses a lot of helium, and last year Qatar supplied over half of China’s total import demand.

This is a chart of 2025 helium production. The United States supplies over 40% of total production, and Qatar was at over 2 million cubic feet, which was a third of global supply.

That’s all past tense, because this year, 2026, brought us the War on Iran, and in the opening days of the war Iran hit that refinery, in Qatar, with drones and missiles. Suddenly that one-third of global helium supplies disappeared. And no matter what happens in the so-called peace talks, the helium supply chain out of Qatar is a years-long repair job, and helium distributors urgently began rationing their supplies.

Helium is used across many key industries, and dealers immediately began prioritizing their customers, with healthcare providers on the very top, and everybody everywhere paying higher prices, if they can get the gas at all. Airgas is a US company; its headquarters is in Pennsylvania. And the US produces 42% of the world’s helium supply—and it’s even a lot higher than that now that Qatar is gone—but nevertheless American companies selling American helium to American buyers are cutting down shipments and adding surcharges.

The shortages will last for up to five years, no matter what happens with shipping through the Hormuz. And it’s not a money problem either. Gas turbines for the refrigeration compressors are backlogged by at least 2 years, and only three manufacturers in the world make them.

So here’s a table that is helpfully updated to show where the industry is. These are individual helium production facilities, and the top two by volume are in the United States. At #6, the Ras Laffan plant in Qatar is offline, 33% gone out of the market completely. There’s Russia at #11, at about 10% of the market pre-Iran, but those supplies are under sanction and unavailable to everyone who isn’t already working with a Chinese middleman.

Unlike other gases, and crude oil, which can be stockpiled over years and drained to keep prices artificially low during wartime, helium cannot be. The helium supply chain is wholly reliant on constant production and delivery, and there is another problem with those special super-cooled containers. There are only 2,000 of them in the world, and a lot of them are stuck in the Gulf:

Here is a map that shows the problem faced by the Qataris, and everyone else in the world who needs helium. There is only one way out, many of the helium container ships are stuck, and emergency stockpiles—which are small to begin with because of the chemical nature of helium itself—are almost all gone:

Semiconductor manufacturing is a trillion-dollar industry, but even chipmakers take a back seat to hospitals during a helium shortage. The semiconductor industry is forced to implement “allocation tiers” to prioritize users there. AI server hardware is the most profitable use of helium, so they’re probably first in line.

This is the Bloomberg Intelligence forecast for what is coming next, for the tech industry.

Short term: chipmaking for consumer electronics will be delayed, along with new product releases and shipments. Data Center growth will be limited, because of hits to cloud storage networks. So that’s the good news for summer.

Medium term. Big impacts for wafers, and in memory packaging. Shortages of AI accelerators, and enterprise AI software costs will shoot higher.

Governments “likely to mandate permanent structure exit from Middle Eastern raw material agreements”, which will force companies to sign long-term contracts with American suppliers, at higher cost. And remember that Airgas can’t supply their own customers, right now.

Long term, countries with access to natural gas fields and helium reserves will gain a permanent operational and financial advantage over everyone else.

That sounds like Russia. We’re back to them again; they have vast reserves, lots of pipelines, and lots of natural gas. So it’s a boon to Russian helium producers like Gazprom.

Where does that leave everyone else?

Canada sees an opportunity too: Canadian companies produce three percent of global supply, but has large, untapped reserves. Currently Canada exports their helium to the US for processing and liquefaction.

So their idea, now, is to try putting some new policies in place, then drive fresh capital investment into the sector, and then build their own liquefaction industry, and get their fields in Saskatchewan producing three times more helium than they do now. That will create “a secure helium supply chain for Canada” and their allies. Five years from now.

Be good.

Resources and links:

Russian sanctions drive China’s expanding role in helium trade
https://www.gasworld.com/story/russian-sanctions-drive-chinas-expanding-role-in-helium-trade/2252158.article.article.article/

Charted: Helium Production by Country
https://elements.visualcapitalist.com/charted-helium-production-by-country/

2026 Helium Shortage: Why Recovery Will Take Years, Not Weeks
https://westairgases.com/blog/helium-shortage/

The Iran war has spiked helium prices. Here's which products and industries could get more expensive.
https://www.businessinsider.com/helium-prices-iran-war-increase-products-industries-more-expensive-2026-4

Cloud data storage impacted by helium supply shock
https://www.gasworld.com/story/cloud-data-storage-impacted-by-helium-supply-shock/2251688.article.article/

Iran war squeezes critical supplies and global alliances
https://www.gisreportsonline.com/r/iran-war-strains/

Helium Supply Shock and Semiconductor Volatility in the Context of the Iran War
https://bisi.org.uk/reports/helium-supply-shock-and-semiconductor-volatility-in-the-context-of-the-iran-war

‘There’s a global supply crisis’: Helium shortage prompts call for more Canadian production
https://www.ctvnews.ca/ottawa/article/theres-a-global-supply-crisis-helium-shortage-prompts-call-for-more-canadian-production/

The Increasing Scarcity of Helium
https://priceonomics.com/the-increasing-scarcity-of-helium/ helium reserve shut down

Russian govt brings in temporary authorization procedure for helium exports until end of 2027 - document
https://interfax.com/newsroom/top-stories/117116/

Helium prices soar as Qatar LNG halt exposes fragile supply chain
https://www.reuters.com/business/energy/helium-prices-soar-qatar-lng-halt-exposes-fragile-supply-chain-2026-03-12/

Iran attacks wipe out 17% of Qatar’s LNG capacity for up to five years, QatarEnergy CEO says
https://www.reuters.com/business/energy/iran-attack-damage-wipes-out-17-qatars-lng-capacity-three-five-years-qatarenergy-2026-03-19/

Iran war halts Qatar helium output, threatening global tech supply chains
https://apnews.com/article/iran-chips-semiconductor-helium-exports-war-fe934332f7c83bb722ca87db22cd57d0
Iranian Strikes Limit Supply of Gas for MRI Machines, AI Chips
https://www.bloomberg.com/news/articles/2026-03-24/airgas-curtails-helium-orders-after-qatar-lng-field-damaged

Russian gas exports to China expand as pipelines and LNG reshape supply routes
https://globallnghub.com/report-presentation/russian-gas-exports-to-china-expand-as-pipelines-and-lng-reshape-supply-routes

The US is attracting millions fewer international travelers, compared to forecasts from just two years ago.

Foreign travel to the United States plunged in 2025, to levels last seen in 2012.

The hospitality industry expected a boom in 2026, with 11 cities hosting World Cup events, and huge per-person tourist spend.

But most host cities in the United States continue to show declines from even last-year's dismal numbers.

China has probably already surpassed the US as the number one global tourist destination, with leisure and business travel up sharply, along with spending.

Report:

Good morning.

This is from 2024, and is a forecast from the International Trade Administration, part of the US Department of Commerce. The National Travel and Tourism Office is projecting international visits to the US, for 2025. They called for an increase of 6.5% from the 2024 numbers; “The United States set to welcome 77 million international visitors” the next year, 2025. They expected a full recovery -- a return to pre-COVID levels of international travel to the United States -- by this year, 2026.

For 2027, the NTTO projected 90 million international visits, with spending over $279 billion, or over $3000 per person.

The full-year 2025 numbers came in, but went in the other direction. The number of international visitors was supposed to increase by over 4 million, but they dropped by over four million instead. 2025 was the first year the number of arrivals to the US dropped since the pandemic ended.

But worldwide, the travel industry is growing, just not back and forth to the United States. The drop in US tourism for 2025 was even sharper than the decline during the Great Financial Crisis in 2008, which was global. It was the worst one-year decline in twenty years, and the international tourism industry in the United States is back to the same levels as in 2012:

Here are the biggest drops in absolute numbers, by country. Canadian visits to the US dropped by over 4 million, from 2024 to 2025. Big declines from Western Europe: Germany and Denmark down by double-digit percentages; tourists from dropped by 116,000:

There is even further deterioration in 2026, and the numbers may be even worse than the official reads. This is from the University of Toronto, and is a study of cell phone activity by Canadian users in the United States. They found a 42% year-on-year decline in Canadian visits, which is far higher than the 25% estimate that was based on the number of border crossings. They conclude there that the border crossing data are failing to account for the real decline in Canadian business travel, and when the Canadians do cross over, they’re visiting fewer places, staying for less time, and certainly spending less money.

Here are the city-level data for Canadian cell phone use, over a two-year period. Four of the top seven are Florida, with over 50% drops. Besides serving as major tourist attractions, Orlando and Miami are also convention and trade show cities. We can say the same of Las Vegas and New York, and Canadians’ cell phone usage there is also down by over half. If they’re going at all, they’re spending a lot less time there.

We’re now deep into 2026; the Commerce Department two years ago projected 85 million foreign tourists for this year, with over 42 million flying in from abroad. North America is also hosting the World Cup, and industry insiders knew there would be a boom, right now, in the inbound travel numbers, who are also spending a lot of money. Eleven American cities are hosting games, and expected visitors to spend $5,000 each. But those forecasts are falling apart too. 80% of hotels report that actual reservations are far below what they planned for.

The boom in travel from Europe just never came. In May, European visits to the US dropped 7% over 2025, and remember that 2025 was lousy. And for June and July, flights from Europe to the World Cup cities are down, even compared to years there are no World Cup games to watch. Flights to New York from Europe are down over 15%. That is a disaster for hotels in New York; the trade association there cut their estimates for the World Cup revenues by 60%. New York area hotels expected revenues of $150 million for the World Cup; now they’re hoping for $60 million.

Hotel bookings for the World Cup, overall, are up 0.5% year-over-year, but that is largely because of big spikes in demand for the games in Mexico City and Monterrey.

Families and business people still are traveling. There are just far fewer going to the United States. This is from the World Travel and Tourism Council, and they forecast that China will replace the United States as the top international destination, and probably already did. 68 million foreign travelers came to China in 2025, which is the same as the United States for last year. Visits to China were up over 15% year over year; travel spending by those travelers is also rising, up over 10%.

This is a business channel, and we wanted to look at that data point, because we think there is a lot there, under the surface. China ranked second worldwide for business travel spending, at $192 billion. And we’re back to the Purchasing Power Parity problem; a travel dollar goes a lot farther in China than almost anywhere else, and that is a major advantage for China’s industrial sectors too.

Here’s what we mean. In July my group will be at the International Building Show in Guangzhou. It runs from 8 through 11 July, and it’s at the Canton Fair complex. I go to a lot of these shows, and look for the same thing, every time. I want a hotel that is in short walking distance of that building. I want breakfast included, and I need a gym.

These hotels are within a 10-minute walk, and you can see the prices. And the brands. Four and five stars, most of them. I can walk a few more minutes and get a nice place for around $80 per night, and this is during one of the busiest trade shows in the world for the building industry.

There is a comparable event in New York City, in October. The Greenbuild International Conference is at the Javits Center, and let’s pretend I want to go there. I still want eggs in the morning and heavy exercise at night, and I want to walk to the show instead of fighting for a cab. And we need to take the prices from Guangzhou and multiply by five to get the same room, nearby the same industry event:

What’s that mean? It means that if your company is in South America or in Europe or in Africa, and obviously anywhere in Asia, you can send five times as many people to Guangzhou for the same money compared to the show in New York.

Or, more likely, you’ll send the same group, but will spend a lot more time and money at the factories in Guangdong that you just met at the show in Guangzhou.

Be good.

Resources and links:

NTTO Forecast of International Visitation to the United States
https://www.trade.gov/feature-article/ntto-forecast-international-visitation-united-states

Visitors to US dropped by millions last year in biggest decline since Covid-19 pandemic
https://www.independent.co.uk/travel/news-and-advice/us-tourism-decline-usa-international-visitors-b2984288.html

U.S. Tourism Takes Massive Hit with 4 Million Fewer International Visitors Last Year: Report
https://people.com/u-s-tourism-takes-massive-hit-with-4-million-fewer-international-visitors-last-year-report-11985347

Staggering dip in US tourism is a troubling sign for the future
https://edition.cnn.com/2026/05/25/travel/analysis-tourism-fewer-international-visitors-2025-vis

US lost 4 million tourists in 2025 — and the World Cup won't fix it
https://boingboing.net/2026/05/25/us-lost-4-million-tourists-in-2025-and-the-world-cup-wont-fix-it.html

U.S. Inbound Tourism Drops 14% in April, Erasing Two Months of Gains
https://skift.com/2026/05/11/us-inbound-international-tourism-april/

European Visitors To U.S. Dropped 7% In May—As Tourism Industry Seeks World Cup Turnaround
https://www.travelpirates.com/captains-log/us-tourism-drops-14-percent-summer-2026

Economic Impact of China’s Travel and Tourism
https://researchhub.wttc.org/product/factsheet-china-travel-tourism-economic-impact

China on track to surpass US as world’s leading travel and tourism economy
https://www.independent.co.uk/travel/news-and-advice/china-tourism-economy-overtake-united-states-b2990253.html

Pricey World Cup keeps fans away, hits US hotels, airlines
https://www.reuters.com/sports/soccer/pricey-world-cup-keeps-fans-away-hits-us-hotels-airlines-2026-06-11/

America’s tourism slump will outlast the World Cup
https://unherd.com/newsroom/americas-tourism-slump-will-outlast-the-world-cup/

How much has Canadian travel to U.S. cities declined?
https://mappingtariffs.org/canada-us-visits

Countries and firms are borrowing billions of dollars by accessing China's debt markets, which offer some of the lowest interest rates in the world.

Panda Bonds are available to some borrowers of Chinese renminbi, to finance business operations in Mainland China, even by banks and companies outside China.

Chinese regulators maintain strict safeguards on who can borrow and use RMB abroad, and for what purposes.

Companies are swapping US Dollar-denominated debt for Chinese capital, and cutting borrowing costs by over half, while reducing FX volatility and and eliminating risks of sanction and asset seizure.

Report:

Good morning.

Countries and companies are shifting away from the US dollar, and from the Western banks. And the process is accelerating.

The demand for an alternative system was always there, but the plumbing was not. That’s to say that new networks had to be established and tested. Bilateral trade agreements, outside the US dollar and European banks, were set up and today are growing fast. New commodities exchanges needed to be set up, with regulations and procedures for those new trading systems.

Now we’re seeing strong demand to borrow Chinese renminbi, instead of US dollars or euro, by major bond market issuers. Countries are borrowing renminbi to pay higher-cost US-dollar denominated debt, and here we can see why.

These are the 10-year government bond yields. The US Treasury borrows for 4.39% for ten years; it follows that companies borrowing US dollars in capital markets, or from banks, pay higher rates that the American government does.

Japan had a zero-interest rate policy until recently; now they’re at 2.6% and companies borrowing yen are paying over 4% coupons for new money. But the outlier on that chart is China, at just 1.73%. So companies are borrowing in Chinese renminbi, to repay loans denominated in other currencies. And other companies are borrowing RMB to refinance loans that are maturing, and which need to be rolled over at new, higher rates than when first issued.

The problem for most would-be borrowers is that China’s capital markets are not open to everyone. Chinese regulators protect their currency from speculators. And the renminbi is not a source of capital for Wall Street traders using low-cost foreign money to do carry trade operations, as they did for years with the Japanese yen.

It is, however, a strong alternative for companies that do real trade, and real business with China. Brazil is a fellow BRICS member and a major trading partner with China, and its central bank is issuing Panda bonds for the first time.

And there we see who Panda bonds are for. Companies in Brazil asked the government there to create capital pools in RMB, so those firms can more easily borrow in RMB, in Brazil and here. Using RMB will reduce the interest rate and FX volatility, and their overall costs. Brazil’s mines and farms do massive trade with China, and need more renminbi in banks there to expand. That all comports with what Beijing wants to do anyway: deepening trade relationships using renminbi, while keeping guardrails up on who is allowed to borrow and use the Chinese currency outside China.

Emerging markets like Brazil are naturally seeking alternatives outside the US dollar. And the booming trade in Brazilian soybeans and Brazilian crude oil, for example, needs to be completely outside the US dollar and the European SWIFT system to insulate that trade from threat of sanctions, or asset seizures.

Brazil has the 10^th largest economy in the world, and trade between Brazil and China went from “does not exist” twenty years ago to one of the biggest bilateral trading relationships in the world.

In 2009, Brazil’s exports to the United States and China were roughly the same; fifteen years later Brazil’s exports to China were four times higher than to the US. That means that Brazilian companies were doing business with China, but in USD, and are desperate to get away from high-cost US dollars and US banks to make this trade go, and telling their government officials in Brazil to get them a better way to do that business.

Pandas are bonds denominated in the Chinese currency, and issued here, in China, by institutions outside China. Those borrowers include Chinese owned-companies across the world, and foreign companies that do business here in China. Also, “sovereign entities”—central banks, in Brazil’s case, who have Brazilian companies who need access to Chinese renminbi. Panda bonds have been around for over 20 years, but demand is booming because of high interest rates everywhere else, geopolitical problems, and Chinese regulators opening up their debt markets to new borrowers.

Foreign institutions are using the renminbi as long-term funding vehicles, and central banks are holding more RMB in the FX reserves, and for their domestic companies to expand trade with China.

Companies who can access new capital at low rates have an advantage, over companies who cannot. Cost of capital is a major driver of competitiveness, and we have this weird situation now: companies who are doing trade with China, and who can borrow in RMB, can borrow at lower rates than even their own governments. Fortescue is an Australian mining company, and last year borrowed 14 billion RMB – that’s $2.1 billion US -- at 3.8% a year. That’s almost a full point lower than the Australian government itself can borrow. The Australian government is a sovereign issuer of debt, and can raise taxes to pay that debt, or just print money. But an Australian company doing lots of business with China borrows at lower rates than the Australian government.

Indonesia is another BRICS country, and another that does a lot of business with China. They, too, are hitting Panda markets to finance growth. The Indonesian economy is booming; GDP growth over 5%, and trade with China is up over 22% over the trailing 12 months.

Global companies everywhere need low-cost capital to grow, and Wall Street and European banks have a big problem if other banks can borrow and lend in RMB, while they cannot. Morgan Stanley and Deutsche Bank are raising billions of RMB at rates below 3%, which is far less than they can borrow in USD or Euro. These are too-big-to-fail banks in the US and Europe, yet even they need to be active in China’s Panda bond markets to have any chance of keeping their bank customers who do business with China. That’s the thinking of most of these financial institutions; banks are more active now in the Panda bond markets than governments and large companies, for that reason.

So now issuance of these bonds is hitting records, rising twice as fast as last year. In Q1 of 2026, issuance was already two-thirds of all of 2025. Panda bonds are more difficult to issue than Dim Sum bonds, and Panda’s are not actively traded in secondary markets. That’s to say again that Panda’s are lousy for speculators or active traders. They’re held to maturity by borrowers.

Besides banks and governments, companies are accessing Chinese bond markets directly, to fund their operations here. BASF is shutting down facilities in Europe, and expanding operations in China, and doing so with low-cost capital from Chinese debt markets. Same thing is going on at VW.

Everything costs more in Europe, compared to China. Even the money.

Be good.

Resources and links:

Resources and links:

Fast-growing panda bond market helping repay US dollar debt
https://www.financeasia.com/article/fast-growing-panda-bond-market-helping-repay-us-dollar-debt/507620

Yuan Bonds Boom as Borrowers Shift Away From U.S. Dollar Funding
https://www.caixinglobal.com/2026-04-10/yuan-bonds-boom-as-borrowers-shift-away-from-us-dollar-funding-102432518.html

Global government bond yields, 10-year
https://tradingeconomics.com/bonds

Brazil plans largest panda bond debut to 'test' waters
https://www.reuters.com/world/americas/brazil-plans-up-5-billion-yuan-panda-bond-issuance-says-finance-minister-2026-06-25/

Brazil to issue first sovereign panda bonds in Latin America
https://www.globaltimes.cn/page/202606/1364484.shtml

Indonesia's Panda Bond issuance remains on track for early July
https://en.antaranews.com/news/420500/indonesias-panda-bond-issuance-remains-on-track-for-early-july

Panda Bonds explained: understanding China’s growing bond market
https://www.db.com/news/detail/20250228-panda-bonds-explained-understanding-china-s-growing-bond-market?language_id=1

Why Wall Street banks and foreign borrowers are rushing to tap China’s cheap money
https://www.cnbc.com/2026/06/18/china-panda-bonds-yuan-funding-costs-foreign-borrowers.html

The panda bonds: how China uses assets to boost yuan’s profile, cement partnerships
https://www.scmp.com/business/banking-finance/article/3357883/panda-bonds-how-china-uses-assets-boost-yuans-profile-cement-partnerships

China's panda bonds on track for record issuance
https://asia.nikkei.com/business/markets/trading-asia/china-s-panda-bonds-on-track-for-record-issuance

Overview of the Opening up of China's Bond Market and Panda Bond Market
https://www.icmagroup.org/assets/documents/About-ICMA/APAC/NAFMII-and-ICMA-English-version-PANDA-BONDS-Raising-Finance-in-Chinas-Bond-Market-case-studies-September-2021-021121.pdf

Indonesia-China Trade Surges to 90.33 Billion USD in LTM Mar 2025 - Feb 2026
https://gtaic.ai/trends/indonesia-china-trade-report-ltm-mar-2025-feb-2026

Indonesia posts fastest economic growth rate in three years
https://www.reuters.com/world/asia-pacific/indonesia-q4-gdp-growth-beats-forecast-highest-since-2022-2026-02-05/

How Australia’s mining giants are helping China to globalise the yuan
https://www.scmp.com/economy/china-economy/article/3353274/how-australias-mining-giants-are-helping-china-globalise-yuan

China pushes to de-dollarize commodities markets, sets up new metals exchange

The BRICS trading system is already wiping out US farmers, as global price discovery is destroyed

The Japan Carry Trade Unwinding
https://blog.marketresearch.com/the-japan-carry-trade-unwinding

De-dollarization in Australia

BASF to exit hydrosulfites business and close production facility in Ludwigshafen
https://www.basf.com/global/en/media/news-releases/2025/09/p-25-181

Volkswagen to Cut 100,000 Jobs and Close Four Plants: Report
https://eletric-vehicles.com/vw-group/volkswagen-to-cut-100000-jobs-and-close-four-plants-report/

VW Group speeds up production cycle with ‘In China, for China’ strategy
https://www.automotivelogistics.media/supply-chain/vw-group-speeds-up-production-cycle-with-in-china-for-china-strategy/2629663

Chinese exports to Japan of tungsten and rare earth metals has collapsed, with trade in some metals dropping to zero.

Japanese manufacturers are snapping up scrap, and investing heavily in new recycling capacity.

China's export bans to companies with military ties are deeply impacting Japanese factory groups.

The Trump Administration and Pentagon is also investing billions into new mining projects, including a mine in Kazakhstan that is partly owned by members of the Trump family.

Report:

Good morning.

The wars in the Persian Gulf and Ukraine are blowing up stockpiles of munitions. And all the supply chains to replace them run through Global South countries, who are shutting off exports to weapons makers.

That poses a major problem for civilian manufacturers, who need those same raw materials to build equipment.

Tungsten is one of those metals that have vast dual-use applications. China produces most of the tungsten in the world, and China has very tight export restrictions on materials that are used by foreign militaries—not just for weapons makers in the United States, but everywhere. Chinese exports of tungsten to Japan have plunged, compared to last year, and in the first quarter of the year, new exports to Japan dropped to zero.

Japanese manufacturing has been deeply impacted. Tungsten prices are soaring, and Mitsubishi Materials is tripling the prices on some of their cutting tools and equipment. Sumitomo Electric is also raising prices. Tungsten is one of several rare earth metals that China has monopolies on, and restricts their exports for military contractors.

The tungsten recycling industry is taking off, and both Mitsubishi and Sumitomo are investing heavily to build recycling capacity in Europe and in Japan. But those are massive companies, and even if they can find new sources for tungsten, for themselves, smaller manufacturers will struggle.

Immediately after China announced new export bans on rare earths, Japanese firms’ imports collapsed. In March and April, Chinese exports to Japan dropped by over 80%. Dysprosium and terbium dropped to zero on the year, and Yttrium imports fell by over 90%. Yttrium is used in medical devices and laser cutting, and chipmaking. But yttrium is also critical in advanced weapons platforms: Shipborne radar systems used by the Navy, precision-guided munitions, and thermal coatings on military jets and missiles.

China is a key supplier of these materials to Japan, while Japan in turn is a major supplier of components and equipment, containing those materials, to the United States. So the Trump Administration requested a resumption of those exports, from China to Japan. “Washington is concerned about the dwindling global supply of Japanese high-tech products”, and at high-level meetings called on China to avoid damage to supply chains for those products.

Japan is a top producer of MRI scanners and other diagnostic equipment, and if Japanese firms can’t source the materials from China, they cannot build them for America, is how the thinking goes there. But Chinese companies also build all that equipment, and American hospitals can simply buy them from China, is how the thinking goes here.

This is from the US Geological Survey. US domestic production of tungsten is zero, since 2015. Globally, China is 80% of tungsten mining, and Japan is also not a producer of tungsten. The top five global producers are China and its neighbors, and they’re friendly neighbors.

Japan doesn’t have any mines, so they’re stepping up their imports of scrap, from wherever they can get it. There is the chart for US exports of tungsten scrap, and lots of that headed to Japan:

Global demand is soaring because of the war in the Middle East, and anyone who builds electronics, or chips, or weapons, or cutting tools needs tungsten.

China has cut off access to many buyers, so the scrap markets are booming. This is a press release from Mitsubishi Materials Group, part of an outreach to companies across the world to sell scrap to Mitsubishi. Remember that this is the same division of Mitsubishi which increased prices for their products, citing the high cost of inputs.

But Mitsubishi’s real problem is that their other divisions are large manufacturers of munitions.

In February, a group of 20 Japanese companies, including Mitsubishi, were specifically restricted from imports of Chinese rare earth metals. Those companies are deeply involved in the production of ships, planes, radars, and missiles. There is the announcement in Chinese:

From 24 February, Chinese firms are prohibited from exporting dual-use items to those companies. And the first five, on that list, are divisions of Mitsubishi. Japan is remilitarizing, and doubling their defense spending. Chinese companies exporting to any of the companies on that list needs to apply for an individual license, each time, for any dual-use item—and that means the metals and any other components—and provide a guarantee that whatever is sent to those companies “would not contribute to enhancing Japan’s military”.

That is an almost impossible standard to meet; after the materials leave Chinese jurisdiction, the buyer can do about anything, and sell to about anyone. So this is a hard ban on anything from Chinese companies to those Japanese companies, for anything that conceivably has a military purpose.

And that is the problem for everybody. Every time something blows up in Europe or the Middle East, Pentagon defense contractors scour the world for the materials they need to build more. That’s the problem with all those metals. China and China’s next-door neighbors own the supply chains for tungsten at the same time civilian and defense manufacturers are fighting over the same pile:

There is no short-term answer to the problem, and long term the only way out for Western companies is to mine and refine these metals at home, or in friendly countries.

Kazakhstan is much more friendly with China than with the United States, but optimism abounds that Kazakhstan will one day serve as a profit center for the Trump family, and a supply chain node for the Pentagon. Eric Trump and Donald Jr. are investors in a company that will merge with a mining operation in Kazakhstan, now owned by Cove Kaz Capital, and Cove Kaz just got $1.6 billion in new federal financing to develop new tungsten projects.

Cove Kaz has also asked for $400 million from the War Department. It takes years to bring new mining projects online, and that is only the first step in the process of building usable materials for the Pentagon or the IDF. And the Trump Administration will be gone, and the White House under new management long before any tungsten moves out of Kazakhstan to help out Mitsubishi or Raytheon. If ever.

Lots of money moving right now, though.

Be Good.

Resources and links:

China tungsten exports to Japan halve amid tightened controls
https://asia.nikkei.com/business/materials/china-tungsten-exports-to-japan-halve-amid-tightened-controls

'Our time is now': Vietnam tungsten firm rides high on Chinese export curbs
https://asia.nikkei.com/business/markets/commodities/our-time-is-now-vietnam-tungsten-firm-rides-high-on-chinese-export-curbs

China's rare-earth exports to Japan drop 80%, sending companies scrambling
https://asia.nikkei.com/business/materials/china-s-rare-earth-exports-to-japan-drop-80-sending-companies-scrambling

US asks China to resume rare-earth exports to Japan
https://asia.nikkei.com/politics/international-relations/japan-china-tensions/us-asks-china-to-resume-rare-earth-exports-to-japan

US tungsten scrap exports to Japan soar on Chinese curbs
https://asia.nikkei.com/spotlight/supply-chain/us-tungsten-scrap-exports-to-japan-soar-on-chinese-curbs

US Geological Survey, Tungsten
https://pubs.usgs.gov/periodicals/mcs2026/mcs2026-tungsten.pdf

Special Feature : Delivering to the world the material of possibilities - TUNGSTEN Vol.3
https://withmaterials.mmc.co.jp/en/233

Japanese companies tackle tungsten shortage amid rift with supplier China
https://www.marketscreener.com/news/japanese-companies-tackle-tungsten-shortage-amid-rift-with-supplier-china-ce7f5dd2da8dfe27

China, tungsten and a supply shock in metal critical for war that will last far beyond Iran conflict
https://www.cnbc.com/2026/06/03/china-metals-national-security-defense-weapons-supply-tungsten.html

China imposes export controls on 20 Japanese entities to curb ‘remilitarisation’
https://www.reuters.com/world/asia-pacific/china-adds-20-japanese-entities-export-control-list-2026-02-24/

Mitsubishi Materials to lift tungsten carbide prices on tight China supply
https://asia.nikkei.com/business/companies/mitsubishi-materials-to-lift-tungsten-carbide-prices-on-tight-china-supply

U.S.-Kazakhstan Tungsten Venture Advances as Critical Minerals Cooperation Deepens
https://timesca.com/u-s-kazakhstan-tungsten-venture-advances-as-critical-minerals-cooperation-deepens/

China's new export ban on tungsten shocks defense contractors as Pentagon races to find new supply

DARPA and the Pentagon hope to build revolutionary new batteries that will power the next generation of weapons systems.

But the global supply chains and manufacturing centers for batteries run through China.

China has tight export restrictions on battery technologies that are intended for military use.

Chinese researchers lead the field in advanced battery tech for heavy equipment, drones, and aircraft.

Report:

Good morning.

DARPA is the Defense Advanced Research Projects Agency, and they are looking for suppliers who can build batteries that can be used in drones, trucks, and other military gear. The batteries they’re looking for need five to ten times the energy density, compared to batteries built today.

They need developers to design new battery cells, using materials and architectures that haven’t been discovered yet. Batteries fielded in Pentagon weapons systems require high energy density, and high levels of power density, and they provide an example of what the difference is. A drone parked over a target needs high energy density, but one moving and launching weapons needs high power density. The War Department’s new batteries must have both.

There’s also the battery charging problem that needs to be overcome. If those batteries can get built, but take forever to charge up again, that poses an OPTEMPO problem.

But the biggest hurdle of all is China: the United States doesn’t produce most of the components for batteries, nor have the raw materials to do so, and battery buyers are reliant on China. The supply chains are outside American control.

China controls those supply chains, and the US needs to find another way, another method that American companies and industry can take over.

Batteries have vast dual-use applications—obviously for the civilian sector, mainly—but also for defense: drones, sensors, communications, robotics, and in military vehicles.

China’s export business for batteries is booming. But China limits sales of their battery technologies only for civilian applications, and restricts shipments to defense contractors. To the Atlantic Council that means that Beijing is weaponizing their battery monopolies, by refusing to let foreign weapons makers buy them. So the US needs to develop a strategy to ensure that the Pentagon isn’t reliant on China for batteries.

The rest of that paragraph is the tricky part: like we saw before from DARPA, new battery sciences need to be invented. The Pentagon program must jump ahead of current battery tech to develop different types of batteries, that don’t depend on Chinese supply chains. That would “have the potential to” to give the US a technological and operations edge.

Later they admit that Chinese researchers are already tackling the energy and power density problems, and have substantially cut the time it takes to recharge their batteries.

China builds tens of millions of batteries for the electric vehicle market, and that’s important too. Chinese companies already have big markets; they’re already making money, so can fund new research and production for defense purposes. Our companies are starting from scratch.

This report is from the IEA and runs 159 pages, and we can see what DARPA and the Pentagon are up against. Battery prices are collapsing in price, over time. So any new battery manufacturers would be walking into an already crowded and highly competitive field, if they hope to sell products to the mass market:

Chinese firms also lead the way on batteries for medium and heavy trucks, and heavy construction and mining equipment, which have even greater power demands than what the Pentagon would need for their trucks:

Chinese battery makers also have their domestic market mostly to themselves, which is over half the global demand, as it is:

While it’s true that the Chinese battery industry has received high levels of government support, it’s actually lower than other G8 countries. Over a four-year period, China government support was $3 billion, for buying incentives; in the United States, it was $44 billion total for EV incentives, charging, and batteries:

So NATO governments are already spending tens of billions of dollars to subsidize industries there to develop battery technologies, and encourage consumers to buy. But those efforts haven’t gone anywhere.

Red on this chart is China, who enjoys massive advantages in battery supply chains. The raw materials are mostly sourced from China, or from countries very friendly with China: Chile, the DRC, Indonesia, and Russia.

Material processing is solid red bars. Cell components and battery cells, all China again:

That all results in these data, for production. China is the green part of those bars, where the world’s lithium batteries made. Far more than the rest of the world combined:

So the Pentagon has a big problem, and we see the same problem in civilian sectors too. This is a press release from ProLogium. They are working with Elysian Aircraft to build battery-powered planes. And it’s interesting to see all the conditional and hypothetical tenses in this document. It’s a Memorandum of Understanding—not a contract—that the two parties will have discussions and assessments about the potential application of next generation batteries. Both parties “intend to explore” new generation battery cells, and “lay the groundwork” for zero-emission air travel. Then a “focus on assessing the feasibility” of using batteries in planes. “As the companies explore a potential cooperation”, “expected to focus on battery technologies” that “support the requirements of big planes flying 750-1000 kilometers, or up to 620 miles.

That company press release made it all sound very tentative, but Interesting Engineering picked up the story and made it seem like the planes are coming any day now.

But once again we learn that the Chinese have already done all that, and more: A surprise successful test flight of a large battery-powered plane. CATL builds 37% of all the EV batteries in the world, and built a new, condensed battery with an eye to invent the aerospace battery industry in their own lab:

CATL teamed up with COMAC, and engineers from both companies got busy fast. CATL says that in the next two years their plane will be in production, with a range of between 2000 and 3000 km. Remember in the MOU from Elysian and ProLogium they were talking and assessing and thinking about building the foundation for a program for a plane with a range of a thousand kilometers.

CATL did their project in secret, and issued their announcement only after it was successfully done. The aerospace industry was “shocked” and it will “change the jet age forever.”

This piece does a good job on the science of the new battery, and they explain that CATL’s breakthrough was in the battery’s cycle life. We’ll link to these.

This is the original paper from CATL in Nature Nanotechnology, and here is a good explanation and summary that is easier to understand, and how CATL’s new battery achieves the energy density required to power large aircraft.

CATL is already invested heavily in Research and Development, with over 43,000 patents for batteries. DARPA and the Atlantic Council are talking about building some batteries for the Pentagon, some day. ProLogium and Elysian are talking about building some batteries they can use in an airplane, some day. But CATL and COMAC are building the batteries, and the planes, right now.

Be good.

Resources and links:

DARPA launches program to build next-gen military batteries
https://defence-blog.com/darpa-launches-program-to-build-next-gen-military-batteries/

Atlantic Council, the US needs a comprehensive battery strategy to ensure its battlefield edge
https://www.atlanticcouncil.org/blogs/energysource/the-us-needs-a-comprehensive-batteries-strategy-to-ensure-its-battlefield-edge/

Next-gen ceramic aircraft batteries could enable 621-mile electric flights
https://interestingengineering.com/energy/next-gen-ceramic-aircraft-batteries-flights

Shock in Aerospace as China Reveals High-Energy Battery Capable of Powering Electric Aircraft and Disrupting Jet Age Forever
sustainability-times.com/energy/shock-in-aerospace-as-china-reveals-high-energy-battery-capable-of-powering-electric-aircraft-and-disrupting-jet-age-forever/

Surprise test flight heralds ultra-long-range electric aircraft by 2028
https://newatlas.com/aircraft/catl-worlds-largest-ev-battery-manufacturer-aircraft/

China firm sets 2027 target for electric plane with 1,800 mile range
https://interestingengineering.com/innovation/chinas-battery-electric-aircraft-1800-mile

Application-driven design of non-aqueous electrolyte solutions through quantification of interfacial reactions in lithium metal batteries
https://www.nature.com/articles/s41565-025-01935-y

ProLogium and Elysian Aircraft BV Sign MoU：Exploring Next generation Battery Applications in Aerospace to Advance the Vision of Zero-Emission Aviation and Future Mobility
https://prologium.com/prologium-and-elysian-aircraft-bv-sign-mou%EF%BC%9Aexploring-next-generation-battery-applications-in-aerospace-to-advance-the-vision-of-zero-emission-aviation-and-future-mobility/

CATL electric plane to support 2,000 km flight
https://www.chinadaily.com.cn/a/202406/25/WS667a5675a31095c51c50ab4d.html

Quantitative mapping reveals key failure mechanism
https://www.batterytechonline.com/materials/catl-achieves-breakthrough-in-lithium-metal-battery-technology

Chinese electric trucks pay for themselves in five years. They may be half the market in three.

China Now Controls Nearly 70% of the World’s EV Batteries
https://www.autoblog.com/news/china-now-controls-nearly-70-of-the-worlds-ev-batteries

China and Iran built a bilateral trading system that moved millions of barrels of oil to China in exchange for infrastructure.

The BRICS countries are highly motivated ditch the US dollar across their banking systems, and thereby protect their own.

Iran's closure of the Strait of Hormuz stopped most outbound oil shipments from Persian Gulf countries, except Iran itself.

The MOU between Iran and the United States will unfreeze $100 billion in sanctioned Iranian funds.

Report:

Good morning.

China, Russia, and the other Global Majority countries have set up their own financial system, outside the US dollar, and in particular outside the Western banking system.

The new system is expanding; the BRICS countries are doing much more of their trade in their own local currencies, and thereby completely avoid the risk of having their money frozen or seized by regulators in Washington or in the EU.

This is a fantastic primer of how the US dollar system works. American citizens, if we’re honest with ourselves, can understand how coercive the dollar trading system is, and can understand the risk that companies and countries have when doing business with US dollars.

Consider this map. Iran has been under economic sanction for most of our lives, no matter how old we are right now. So the first question, right away, is how the United States can freeze Iran’s funds, outside the United States? Iran has $2 billion in deposits in the US, but tens of billions more in Iraq, India, Korea, and Qatar. There may be as much as $50 billion of Iranian funds locked up in banks in China.

These funds, in US dollars, are for energy that Iran delivered, and is still waiting on payment for. That part is important. The US can stop countries from paying Iran for oil because of the petrodollar system. And the Treasury Department can block banks from the entire dollar system if they release those funds to Iran, in this case.

The question is, how? If the money is sitting in a bank in Switzerland or China, how can Washington stop the money? And the answer is that the US has absolute control over US settlements, no matter where those dollars happen to be at the moment. American regulators can simply switch off access to the whole system and effectively freeze funds.

Obviously that is a very powerful tool, at the sovereign-state level, and is one that policymakers are always tempted to use, and always do. Understanding how it works is important to understand the risks involved to countries outside the United States, who trade with each other using dollars. And it’s also important to understand why there is such an urgency for those countries to set up their own system.

This is how the system works, in a nuts-and-bolts way. A US dollar held in a non-US bank is a digital record, and is an obligation of that foreign bank to its customer. The value of that relationship is wholly based on whether or not that customer can use those dollars, held on deposit. To make that go, all the banks outside the US need a correspondent bank, in the United States.

Let’s suppose a company in Germany is buying from a company in Japan, and needs to pay $100,000 USD for the products. These are all friendly countries, then, lately anyway: Germany, the United States, and Japan.

First the bank in Germany takes $100,000 out of the company’s account, there. From the buyer.

Then, the German bank sends an instruction to its correspondent bank in the United States, to transfer $100,000 from the German bank’s account, probably in New York, to the Japanese company’s correspondent bank, which is also probably in New York.

Those two correspondent banks then clear and transfer the funds; funds move to the correspondent bank of the Japanese company’s domestic bank.

That done, the Japanese supplier is credited with the $100,000. The seller’s bank, in Japan, gets $100,000 USD, or the yen equivalent.

That’s the system. Obviously, this transaction takes some time, and generates fees for the American banks that aren’t really doing much of anything at all except receiving and sending messages between themselves, just down the street from each other, and very often inside the same bank.

Almost every US dollar transaction happens this way.

Now come the sanctions. The Office of Foreign Assets Control is part of the Treasury Department, and they enforce the economic and trade sanctions of the United States. OFAC maintains a list called the SDN, which is people, companies, organizations, ships, industries, and governments.

When the United States imposes sanctions against one of those parties, they go on that SDN list. All American companies and people and banks are banned from doing business, and required to block the transfer of any property in their custody. When a foreign bank is put on the SDN, those correspondent banks are legally required to immediately freeze all the funds held on deposit there:

At that point, nothing moves. No money is going in, or getting out, of those accounts. The bank cannot process any USD trade. If they try to send a payment it will be blocked, and if a payment comes in, the funds are frozen at the correspondent bank level. That’s another risk—the bank may be under sanction, but the individual customers may not be, and their accounts are frozen anyway.

The US Treasury also works closely with regulators in Europe. SWIFT is a messaging system between banks, and the SWIFT system makes it even easier for regulators to lock up funds. SWIFT is used by banks everywhere, even those not using dollars. So locking banks out of the SWIFT system effectively shuts down trade in USD, and also in euro. It’s not a “freeze”, in the way being put on the SDN list is, but moving money around without SWIFT is really hard to do. Also, that is, until lately.

This was a watershed moment in global finance, and geopolitics. The BRICS countries wanted to set up their own system, eventually, but they were taking their time about it.

But then the assets of the Russian Central Bank were frozen in the EU and in the United States, and that turbo-charged the effort of the Global South countries to get away from our system. $300 billion in Russian gold and FX reserves were held in custody in banks outside Russia; that was money that Russian companies had already earned, selling energy to Europeans. Suddenly they couldn’t access it anymore.

Back to Iran. The United States cut off any bank from the dollar system if that bank does business with banks in Iran. South Korea, Japan, and India bought oil from Iran. That oil was delivered, by Iran, but the dollars were frozen there. India is a BRICS country and was a major buyer of Iranian crude. Now they cannot use dollars to buy any more.

Iraq buys electricity and gas from Iran, which is next door. For years there was a waiver from the United States that allowed for those sales, in dollars, so that Iraq could keep their lights on. But last year the Trump Administration put the sanctions back, on even that trade.

The policy was aimed at Iran, but it left the Iraqis scrambling to buy electricity and gas from somewhere else, obviously at higher prices. A spokeswoman for the American embassy in Baghdad explains that “Iraq needs to eliminate its dependence on Iranian energy” sources as soon as possible.

There are consequences to all of this. Anyone who is concerned about whether one day in the future they may run afoul of American policy, for some reason, needs a new system, and is happy to do business with anyone who sets one up. And the BRICS countries have done exactly that.

Iraq cannot buy electricity from Iran, because they must do that trade in dollars. That’s because of the treaty with the United States, which routes the proceeds of Iraq’s oil sales through banks in the United States directly, then disbursed later to the Iraqis. Even those funds are subject to freezing and seizure.

But China buys millions of barrels of Iranian oil, outside the US dollar system. The China-Iran oil trade is similar to a bartering system: Iranian oil is shipped to China, who builds infrastructure in Iran.

This is the plumbing that China and Iran set up, and at no point are US dollars used, nor, obviously, are any funds zipping through correspondent banks in New York. Iran exported $43 billion of oil last year, and 90% of that oil came here:

In the Memorandum of Understanding between Iran and the United States to end the war and open the Strait of Hormuz, Iran is allowed to immediately sell oil on open markets, and the sanctions come off. About $100 billion will be un-frozen, along with another $300 billion on the way for reparations.

This is a key point here: Iran was smuggling out the oil anyway, and earning billions of dollars. Iran closed the Strait of Hormuz for oil sales for everyone else, except for their own, and were getting far higher prices for that oil than before.

The United States was in an impossible position, and the thinking there is that they may as well take all the chains off in exchange for oil flowing smoothly again, for everyone. And American banks can’t make billions of risk-free profits skimming off the top of the Persian Gulf oil trade until it’s moving again.

We can think of it this way. China set up that system, which is outside the US dollar and US banks. Iran sold oil last year, despite the sanctions, using that system, going around the US dollar. This year, oil tankers went around the US blockade, and got Iranian oil to other markets here in Asia. And all that trade was outside the dollar too.

Iran. China. Russia. Those are BRICS countries. And they’ve blown up petrodollar system for themselves, and for anyone else who wants to join.

Be Good.

Resources and links:

Dollar Architecture: How U.S. Sanctions Freeze Assets Abroad
https://ofacblockedfundslawyers.com/us-sanctions-freeze-dollar-assets-abroad/

See Where Iran’s Billions of Dollars in Frozen Assets Are Held
https://www.wsj.com/world/middle-east/iran-frozen-assets-7e926b39

Trump, Aiming at Iran, Puts a Squeeze on Iraq
https://www.wsj.com/world/middle-east/trump-aiming-at-iran-puts-a-squeeze-on-iraq-d37622e8

The Trump-Iran Deal Allows Tehran to Immediately Sell Oil
https://www.wsj.com/world/middle-east/the-trump-iran-deal-allows-tehran-to-immediately-sell-oil-37a1ebe5

How China Secretly Pays Iran for Oil and Avoids U.S. Sanctions
https://www.wsj.com/world/middle-east/how-china-secretly-pays-iran-for-oil-and-avoids-u-s-sanctions-b6f1b71e

Now it's oil: China, BRICS and OPEC+ build new trading system, locking out US suppliers and banks

Iran's shadow oil trade endures near Singapore despite war
https://www.france24.com/en/live-news/20260416-iran-s-shadow-oil-trade-endures-near-singapore-despite-war-1

Ships With Iran Oil Anchor Off India as Trump Announces Blockade
https://www.bloomberg.com/news/articles/2026-04-13/ships-with-iran-oil-anchor-off-india-as-trump-announces-blockade

Iran still exporting millions of barrels of oil through Strait of Hormuz even as other traffic paralyzed
https://edition.cnn.com/2026/03/16/business/iranian-oil-exports-hormuz-strait-intl-cmd

How the U.S. controls Iraq's oil revenues
https://www.reuters.com/business/energy/how-us-controls-iraqs-oil-revenues-2026-01-23/

U.S. Withholds Iraq’s Own Money Over Ties to Iran
https://www.nytimes.com/2026/04/22/world/middleeast/iraq-us-dollars-shipment-iran.html

Sanctions List Search
https://sanctionssearch.ofac.treas.gov/

China isn't dumping dollars. They're dumping banks, and setting up a new financial system.

The world is critically short of the aggregate materials to build concrete.

Over a billion people in the developing world will move to cities in the next two decades, and dredging companies are ripping up river beds and seafloors to find concrete-quality sand.

China moved its construction industry to artificial aggregates, and will source future volumes from construction and demolition waste.

Chinese researchers also hope to turn their giant piles of coal gangue into usable building material, and thereby solve two major environmental problems at once.

Report:

Good morning.

China urbanized at one of the fastest rates in world history. In 1980, less than 20% of China’s population lived in cities; today over two thirds of Chinese are in urban areas. In the provinces along the Pacific coast over 70% of residents live in cities. In Southwest China, it’s 59%.

This is a comparison of the urbanization trends in the United States and in China, after moving China’s timeline up 70 years. So the begin date for the US is 1880, when 30% of Americans lived in cities, and 70% were rural. In 1949, China’s population was 90% rural and 10% urban. In both the US and in China, it took about another 70 years to build cities for two thirds of the population: in the US, that milestone was hit in 1950, while in China it was in 2020.

But China has a far larger population, and so in just one three-year period China poured 6.6 billion tons of concrete, while during the entire 20^th century the United States poured 4.5 billion tons:

We want to consider those data from the Chinese perspective, instead of the US one. The United States and Europe urbanized before China did; again, 70 years before.

But today large populations here in Asia, South America, and Africa are urbanizing, and in the next 25 years, another billion people worldwide will move from the countryside to cities, which approximates what the Chinese did here.

That means the world will need a lot of concrete, and that means a lot of the special kind of sand that is used to make concrete. And the world doesn’t have nearly enough. Over the past few days we learned that the word “sand” is a lot more expansive that we imagined, and to people using concrete, only a certain kind of sand will do.

Aggregate is what makes concrete so valuable for building, and aggregate comes from gravel and sand. Most of the world’s sand, though, is too smooth, and the grains too small, to be used as aggregate, and in concrete. The best sources of concrete-grade sand are quarries and riverbeds.

Today the demand for sand is so high that dredgers are scraping beaches and the ocean floor. Sand from those sources also contains heavy traces of salt, which need to be completely removed to prevent the corrosion of other metals in the building. That’s expensive, but worth it. Cities tend to be near the ocean anyway, and the price of sand is high enough to cover the costs of ocean dredging and salt removal.

China is the world’s biggest consumer of sand, powered by that construction boom that urbanized a billion people here. But the rest of the world is catching up.

The extraction industry for sand and gravel is even greater than for fossil fuels.

85% of all mineral extraction is for sand mining, almost all of that is for the production of concrete. These materials all have specific chemical and physical properties, which we have linked to here, and below.

China plans to further urbanize and develop its Western provinces, and continues to invest heavily in new infrastructure, throughout the entire country. But China’s demand for aggregates peaked ten years ago, as the Chinese concrete materials industry shifted from natural aggregates, to man-made. And the percentage of natural is dropping, fast, and after 2030 recycled concrete will be a major source of base material.

“Natural” are river and lake sand, pebbles, and “natural” also includes seafloor sand that has been desalinated.

“Manufactured aggregates” are from crushed stone. “Recycled” aggregates are sourced from Construction and Demolition Waste, or CDW. Not all CDW is suitable for all uses of concrete, used for heavy loads and bridges, for example.

By 2020, Manufactured Aggregate was over 75% of the Chinese sand market. Stone crushing is a very capital-intensive process: from raw rocks, through the feeders and crushers, then the sand-making machine itself, then to be sorted and washed. It’s expensive. But the alternative is dragging sand out of riverbeds in massive volumes, which is an environmental problem.

The global demand for sand and gravel is 50 billion tons a year, and using manufactured sand allows building to go on, with a far smaller impact on the rivers and oceans. China’s demand for sand increased by five times over just 25 years, and almost all that new demand was met by production of artificial sand, and 25 years from now, recycled concrete will be about half the market, and the demand for natural sand will drop to about 10%, in China.

These changes were driven by top-down regulation and policy. Beginning in 2010, Beijing enacted new restrictions on riverbed dredging, and heavily promoted the industries for artificial sand. Again, CDW – recycled -- will meet half of China’s demand for concrete by 2050:

So this can all serve as a valuable lesson for other countries who are urbanizing at the same high rates that China has been over the past decades. And Chinese factories in Henan and Shandong manufacture most of that equipment used in artificial aggregates, so this is a major export opportunity for those companies, and for Chinese quarries who can just manufacture sand for export.

There may be more good news on another front. Chinese researchers developed a process that turns coal gangue into construction-grade aggregates, and recover rare-earth and heavy metals. China has a massive coal industry, and today has stockpiles of about 7 billion tons of coal gangue.

That, then, is also a massive environmental problem. Coal waste eventually makes its way into water tables, and particulates that are in the air. Were they to transform that gangue into commercially viable product, they would create a circular economy that would also help solve the gangue problem. Replacing natural sand with coal waste solves two major environmental problems at the same time, not just in China, but everywhere coal is burned, or ever was. Datong is in Shanxi, which is the base for China’s coal industry, and they’ve begun a 10-million-ton project.

It’s early, and they have a long way to go to make much of a dent on demand, and they need to be make certain first that they’re not just moving the heavy metals problem from old tailings piles in Shanxi to new apartment buildings in Sichuan.

We were reminded of this story. China had the world’s biggest trash problem, and built an industry to turn their waste dumps into electricity. Those processes and that technology are now in high demand across the world, anywhere people are producing garbage, and use electricity, which is everywhere.

If they get the Shanxi project to work, and turn their hazardous coal gangue into usable construction materials, the demand for that technology will be parabolic, immediately. Everyone will want it.

Be Good.

Resources and links:

We’re Running Out Of Sand… And Cities Are To Blame
https://www.lauriewinkless.com/journal/were-running-out-of-sand-cities

The Effect of Aggregate Properties on Concrete
https://www.engr.psu.edu/ce/courses/ce584/concrete/library/materials/aggregate/aggregatesmain.htm

The effect of coarse to fine aggregate ratio on the fresh and hardened properties of roller-compacted concrete pavement
https://www.sciencedirect.com/science/article/abs/pii/S095006181830477X

Declining demand and circular transition possibilities of sand, gravel and crushed stone in China
https://pmc.ncbi.nlm.nih.gov/articles/PMC12541054/

China builds with manufactured sand, easing worry about overmining and environmental cost
https://www.scmp.com/news/china/science/article/3273891/china-builds-manufactured-sand-easing-worry-about-overmining-and-environmental-cost

China Now Uses 80% Artificial Sand. Here’s Why That’s A Bigger Deal Than It Sounds
https://www.zmescience.com/science/news-science/china-80-percent-artificial-sand/

Half of China’s raw building materials could be recycled by mid-century: study
https://www.scmp.com/news/china/science/article/3331705/half-chinas-raw-building-materials-could-be-recycled-mid-century-study

The waste-to-sand plant that could pave the way for China’s zero waste coal goal
https://www.scmp.com/news/china/science/article/3357067/waste-sand-plant-could-pave-way-chinas-zero-waste-coal-goal

China turns to recycled coal waste to meet surging demand for construction sand
https://interestingengineering.com/innovation/china-turns-to-recycled-coal-waste-to-meet-surging-demand-for-construction-sand

Statista, Urbanization in China
https://www.statista.com/statistics/270162/urbanization-in-china

The Urban World
https://storymaps.arcgis.com/stories/ce3c9b908a8e458e8ce12b7da35dea04

The world moves to cities
https://www.voronoiapp.com/demographics/The-World-Moves-to-Cities-7493

IMF, Moving on up
https://www.imf.org/external/pubs/ft/fandd/2014/12/picture.htm

Industrial Colossus: China vs 1950s America

Cogitations

Industrial Colossus: China vs 1950s America

Chinese industrial maximalist Lu Feng argues that China today resembles the United States on the eve of World War I. But the analogy is faulty. China’s industrial strength—and its broader economic trajectory—is much closer to the United States of the 1950s…

Read more

a year ago · 69 likes · 6 comments · Jonathon P Sine

China’s Factory Floor Is Moving—But Not to India or Mexico
https://www.wsj.com/world/china/chinas-factory-floor-is-movingbut-not-to-india-or-mexico-dbd9fd69

China Provincial Growth Map 2025: Central and Western Momentum, Coastal Underperformance
https://andamanpartners.com/2026/02/china-provincial-growth-map-2025-central-and-western-momentum-coastal-underperformance/

Sand dredging encroaches on marine protected areas, scientists find
https://oceansolutions.stanford.edu/news/sand-dredging-encroaches-marine-protected-areas-scientists-find

Scientists and researchers in China are developing cutting-edge tools for the deployment of 6G telecom networks.

6G is thousands of times faster than 5G, with near-zero latency, and will completely transform almost all industries.

China has monopolies on the key raw materials inputs for 6G systems, including gallium compounds.

The same rare earth materials and components that are in high demand by the Pentagon and NATO militaries, also have profound uses in civilian applications.

Report:

Good morning.

The supply chains for the most important technologies run through China. The materials for the key industries, which today make modern life possible, as well as the hardware and systems that will power the rest of the century.

It’s already a crisis at the Pentagon. It doesn’t matter how much the United States plans to spend on defense; they need Chinese companies to mine and refine the raw materials that go into all their strategic weapons platforms, and even to build the semiconductors for them.

And China is cutting off exports of those materials and components to Pentagon contractors, and to weapons makers outside China.

Over 300 new F-35 jets have been delivered without radars, because of China’s export bans on gallium. Gallium nitride is used for the radars on advanced aircraft, and in those giant radar systems that Iran blew up in the Persian Gulf. Gallium nitride makes smaller and lighter systems possible. That has profound implications for militaries, but gallium is also critical, for that same reason, in civilian telecom systems.

The United States doesn’t make any gallium at all, and China makes 99 times more than the rest of the world, combined. The Pentagon needs gallium for over 11,000 components, while 85% of the Pentagon’s supply chains are dependent on Chinese suppliers to get weapons built.

This is from the US Geological Survey, with the most painful parts highlighted: no domestic production of gallium in the United States for forty years. That’s the top line. Bottom line: net import reliance, 100%. China is 99% of global production:

China has gallium, so their most advanced jets have the most advanced radars. Pentagon suppliers, in the meantime, are shipping planes out with ballast where the radars are supposed to go. Lockheed Martin hopes one day to find some gallium and build some radars, but until then they need to put barbells on the planes, so they don’t somersault in-flight.

At the time of China’s export ban on gallium, the US National Defense Stockpile didn’t have any gallium, which makes us wonder what those guys are doing, exactly. Do they understand what their job is?

No reason to be pessimistic, though: the United States needs a “hard pivot” and develop and a full gallium supply chain that includes gallium extraction and wafer fab and packaging, with production lines for military and civilian customers. Simple enough. Except that the gallium industry is a by-product of the aluminum mining and smelting industries, and the United States needs to build one of those, first:

Let’s assume that not much is likely to happen in NATO countries anytime soon, to dislodge China and its total monopolies on gallium. Obviously, that’s a problem for the Pentagon, and those Air Force pilots who are flying planes with no radars on them.

But those monopolies also mean that Chinese researchers can get busy on 6G telecom, before anyone else. The Number 55 Research Institute is under US sanction. They just developed a revolutionary gallium semiconductor for 6G, and is producing 5 million of them to build smart terminals for a space-air-ground integrated network.

These chips are for industrial applications: 6G communications, commercial space launches and satellites, emergency response. The low-altitude economy is heavy drones, used for everything—air cargo, mining, construction, passenger transport. The chips will also be used in high-end phones, especially in areas where land-based cellular signals haven’t yet been built, and now there is no hurry to be. Users can simply be direct to 6G satellite.

The commercial and industrial applications are the most important difference, between 5G and 6G. 5G is adequate for household and personal users. 6G presents a quantum leap in speed and latency over 5G, which is a boon to industry, especially the industries that China also has major advantages in.

Chinese companies are way ahead in local, industrial-level deployment of private 5G systems. This is a huge industry here: private telecom networks for warehouses, logistics nodes, mines, and factories. The differences in speed are at orders of magnitude higher for 6G, thousands of times faster, and 6G allows for rollouts to areas that are not being served at all, currently.

This is very important: 6G networks have not been standardized. Global protocols have not yet been established, because the systems have not yet been built. But China is building them, and so China will define those standards:

This research asks and answers some important questions: 5G seems to be just fine for doing what users need, so why bother building 6G? And here again, it is in business and industry where the demand will be. Breakthroughs in sensing, imaging, and precision positioning, which is an industry China recently took over. Precision in robots and advanced manufacturing. 6G operates in the terahertz frequency bands, and so 6G data centers will run faster and cost less.

This is to say that 6G are technologies where the demand will be heavily weighted on the industrial side, and far less so for individual users. To download a 21 terabyte-sized file will take 5 hours on a 5G network, and just 18 seconds on a 6G. Going back to this, 6G systems allow for downloading 200 films a second, and there is little demand for that speed, today at least, from individual consumers. The demand is from industry, where money is no object to building data centers, for example.

Capital Expenditures for 6G are already ramping up, but Ericsson is going to hit the same ceiling they’re already at for 5G: they need gallium from China, and the commercial success of 6G will depend on “tangible use cases” on the industrial side. And those run through China too.

Boston Consulting Group estimates that 5G has generated over $1 trillion in new economic output, which will grow to $18 trillion by 2035. But 6G will create completely new enterprise models and large-scale AI. 6G will transform manufacturing, smart cities, healthcare, and public safety. BCG urges that governments and industry come together and establish standards for radio frequency spectra and infrastructure planning and buildouts.

The Trump Administration acknowledges that 6G is “foundational to the national security” of the United States, foreign policy, and economic prosperity, and it is the policy of the United States to lead the world in 6G. President Trump ordered consultations and research to figure out the radio spectrum problem and get busy on commercial applications. Also, to get the State Department working with friendly countries that support the US position, that the United States should be in charge of 6G.

The problem is that the United States cannot do any of that, because it cannot build anything for 6G until the mining and refining problems are solved to get the raw materials, and then thousands of scientists and engineers are trained to apply the technology to build out 6G.

Chinese scientists and engineers are doing exactly that already. This is from Matter, a Cell Press Journal, and we’ll turn to Interesting Engineering for more help understanding it: It’s a photonic engine that uses white light to transmit data, which can power intelligent 6G networks. Conventional light communications can operate only in small areas, but this new technology works over 1 kilometer:

Here’s another one, and once again we needed IE to translate it for us. This Chinese group built the world’s first all-frequency 6G chip. The entire radio spectrum from 0.5 to 115 Gigahertz is now on a single chip; previously they needed nine different radio systems:

This chip then can be used in systems everywhere, and establishes a foundation for AI networks and used in phones, base stations, drones, and IoT devices. Phones, drones, and Internet of Things devices.

And suddenly here are applications that WILL have high consumer demand, from non-commercial users.

And that’s the point for all these technologies; all these advances. Supply chains are everything, and so are hundreds of thousands of top STEM researchers and engineers who are busy building applications for them, and new markets for them.

Right now, the Pentagon can’t put radars on their hundred-million-dollar planes or replace billion-dollar radar systems, because the Chinese won’t sell to them. And those chips, and those gallium semiconductors—mass-produced--mean that ten years from now anyone who wants the best phones or the best drones or the best robots will need China to sell to them.

Be Good.

Resources and links:

Reports Suggest F-35s Are Being Delivered Without Radar Amid APG-85 Delays
https://theaviationist.com/2026/02/12/reports-suggest-f-35s-delivered-without-radar/

Ballast Instead of Radar: Lockheed Martin Delivers F-35 Without AN/APG-85 Due to Delays
https://militarnyi.com/en/news/lockheed-martin-delivers-f-35-without-an-apg-85-due-to-delays/

China's newest air force jets have next-generation radars. New USAF F-35's have no radars at all.

China begins large-scale delivery of gallium chips for space-ground 6G network
https://www.scmp.com/news/china/science/article/3356321/china-begins-large-scale-delivery-gallium-chips-space-ground-6g-network

Why America’s best fighter jets are being made with deadweight
https://www.washingtonpost.com/opinions/2026/04/27/pentagon-fighter-jets-are-being-delivered-without-radar/

US Geological Survey, Gallium
https://pubs.usgs.gov/periodicals/mcs2026/mcs2026-gallium.pdf

The United States Is Repeating Its Silicon Mistake with Gallium Nitride
https://warontherocks.com/cogs-of-war/the-united-states-is-repeating-its-silicon-mistake-with-gallium-nitride/

What are the key differences between 5G and 6G?
https://www.raconteur.net/technology/key-differences-5g-6g

Why Do We Need 6G and What Are the Challenges?
https://www.idtechex.com/en/research-article/why-do-we-need-6g-and-what-are-the-challenges/28805

What is 6G? How is it different from 5G?
https://www.rantcell.com/how-is-6g-mobile-network-different-from-5g.html

5G vs 6G spectrum comparison
https://electronics360.globalspec.com/article/18760/5g-vs-6g-spectrum-comparison

6G: The Network for the Future of AI and Immersive Connectivity
https://web-assets.bcg.com/9c/73/4ac7634848a0b0bb31cf8dae40cb/6g-the-network-for-the-future-of-ai-and-immersive-connectivity-report-feb-2026-edit-03-web.pdf

Tailoring quasi-transparent ceramic as a laser-driven photonic engine for kilometer-level white light communication
https://www.cell.com/matter/abstract/S2590-2385(26)00185-2

Numbers Matter: Defense Acquisition, U.S. Production Capacity, and Deterring China
https://www.govini.com/blog/numbers-matter-defense-acquisition-u-s-production-capacity-and-deterring-china

Ultrabroadband on-chip photonics for full-spectrum wireless communications
https://www.nature.com/articles/s41586-025-09451-8

How Much Control China Has Over the World’s Critical Minerals
https://elements.visualcapitalist.com/how-much-control-china-has-over-the-worlds-critical-minerals/

Charted: China’s Grip on Critical Mineral Refining
https://www.visualcapitalist.com/charted-chinas-grip-on-critical-mineral-refining/

China’s New Rare Earth and Magnet Restrictions Threaten U.S. Defense Supply Chains
https://www.csis.org/analysis/chinas-new-rare-earth-and-magnet-restrictions-threaten-us-defense-supply-chains

De-risking Gallium Supply Chains: The National Security Case for Eroding China’s Critical Mineral Dominance
https://www.csis.org/analysis/de-risking-gallium-supply-chains-national-security-case-eroding-chinas-critical-mineral

China Leads the Way With Private 5G Networks at Industrial Facilities
https://www.wsj.com/business/telecom/china-leads-the-way-with-private-5g-networks-at-industrial-facilities-11647163802