Sunday, August 4, 2013


For some, China is the business opportunity of a lifetime, but for others, the geostrategic and environmental threat of the century.
We live one of the most dramatic developments of our age: the rise of China from an inward-looking agricultural nation to an industrial behemoth that is scouring the planet for energy, food and minerals.
After 25 years of rapid development, China has established itself as the workshop of the world. Now it is moving towards a new phase - from mass producer to superconsumer - that could lead to one of the biggest redestributions of the planet's resources in history.
A global shopping expedition is already under way. Its buyers include the Chinese businesspeople who have started to prospect in the Sahara and Siberian tundra; the traders who are dictating world prices for commodities and shipping; and the diplomats and military attaches who have been sent on a geostrategic charm offensive.
As well as being the biggest business opportunity in decades, it poses an enormous risk for the global environment and balance of power. For many products, China has recently overtaken the US as the world's biggest consumer, and its appetite can only grow. While the living standards of the vast majority of the 1.3bn population still lag far behind those of developed countries, the government's priority is to create hundreds of millions more consumers.
Given the poverty in the countryside, where many families subsist on less than $1 a day, China has a long way to go to catch up with the west. But things change at a staggering speed.
It is a lesson being learned all over the country, but especially in Shenzhen. No other city than Shenzhen has benefited more from the embrace of globalisation. When Deng Xiaoping launched China's opening-up policy in 1978, Shenzhen was a fishing village. Today, it is a free-trade zone of skyscrapers, hangar-sized factories and malls. The population has surged to 12 million and with income levels twice the national average, municipal officials boast that their city is China's richest.
Checkout counter
This wealth has been generated by Shenzhen's role as a checkout counter for goods arriving and leaving the Pearl River Delta in the freighters and supertankers. The Yantian port, which was marshland 10 years ago, now handles more than 12m containers a year.
The story is the same along the east coast. Shanghai overtook Rotterdam as the biggest port in the world. In Tianjin the extensive docks are about to double in size as an iron ore terminal is built. So many goods come in and out of China that there are not enough vessels to carry them. Shipyards churn out hulls at a record rate, but cannot keep up.
Until recently, the story of China's economic miracle had an exclusively supply-side plot as farming villages transformed into low-cost manufacturing bases. But now its ability to make and sell has become increasingly dependent on its power to buy and consume. This is transforming relations with the outside world. Instead of just making cheap things for rich nations, China has started to become a rival buyer.
Foreign-owned factories, which make goods largely for export, are still the main source of demand. But domestic consumption is also becoming globally significant. Although average incomes are less than a 20th of those in Europe, the population is so much larger and prices so much cheaper that China has become the world's biggest market for TVs, mobile phones and just about every household appliance. Since 1978, electricity consumption has risen sevenfold and beer sales have risen 60-fold. Computer sales more than double every three years and the number of new car owners is increasing by 2 million a year.
Once self-sufficient in many primary products, China now gobbles up global resources. According to the Asian Development Bank, China takes 40% of the world's steel, 30% of its coal, and 25% of its aluminium and copper. It is now a major importer of grain, soya and even rice because so much farmland is given over to factories, malls and housing.
Energy demands
It has also started to snap up any energy resources, no matter the economic or political expense. Since the US, Europe and Japan have tied up the majority of the most accessible supplies, Beijing has had to shop where oil and gas are technologically or politically more difficult to extract, striking deals with unsavoury regimes in Iran and Sudan.
As with Japan in the late 1980s and early 90s, China's surge has led to frightened cries in the west, particularly in the US, of "the Asians are coming!"
In economic terms, such fears are at the very least premature. Average incomes passed $1,000 only last year and the US treasury believes they will not catch up with those in America for 38 years even if China sustains its current level of growth. That is highly doubtful. China faces many risks, notably a widening wealth gap and environmental destruction. Recent rural riots have raised the possibility of social implosion.
Chinese diplomats say overseas commentators exaggerate China's strength. "China has a huge population so, of course, after 10 years of development, our purchasing power has increased considerably and our people want a more comfortable life," said Wang Huijun, a deputy director of the Chinese foreign ministry. "But this does not represent a threat to other countries. We are still a poor developing nation with very basic needs: to eat and drink. Some rural areas are as deprived as the worst places in Africa. For many, a good lunch is one where they can have an egg rather than just corn. It will be impossible for China to reach the living standards of the US or Europe within 50 years."
But because China's population is more than four times bigger than that of the US, the shift in the balance of global spending power will come far sooner.
Increased Chinese consumption is the world economy's best news for decades. Just about every major manufacturer and retailer has moved to China in the expectation that its shoppers will drive global growth.
That is likely to be the more immediate threat of China's rapacious appetite. The past 25 years of economic growth have devastated China's environment; another 25 could do the same worldwide. The Earthwatch Institute says that if China's 1.3 billion people consumed at the same rate as Americans, global production of steel, paper and cars would have to double, oil output would need to rise by 20m barrels per day and miners would have to dig an extra 5bn tonnes of coal. If they followed the US appetite, China would chew its way through 80% of current meat production and two-thirds of last year's global grain harvest.
Lester Brown, the president of the institute, believes the squeeze on global resources will come far more quickly than policymakers are prepared 

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