Some thoughts on China
Invoking Mickey Kaus’s first law of journalism, we now declare that China has finally arrived, since we’ve just noticed it. Noticed it in the sense of noticing Japan in around 1980, when it started to make its huge impact on America. China’s 1980 seems to have arrived.
First, in scale, via Mark Helprin in the WSJ. China has a PPP ecomony of about $6.5 trillion (versus $11 trillion USA), though its GDP per capita is around $5000, or what the US had 80 years ago or so. Its economy will double in the next 8-10 years. It has generated $400 billion in balance of payments surplus cash. China spent $60 billion (PPP) on the military last year.
Second, in oil. China’s oil imports have skyrocketed in 2004, up 46% in November (IHT), and probably over 40% for the year as a whole. China imports half its oil from the middle east, and recently signed a $100 billion deal with Iran; but its national oil company has become a player all over the world (this via an informative article in TIME):
CNOOC, for example, signed a deal two years ago to extract a million barrels of oil a day in Indonesia, and a year ago it signed a major contract to produce gas in Australia. In February, President Hu traveled to Gabon hoping to secure agreements in Africa. In June, he led a delegation from China’s natural gas industry to Uzbekistan to build the mainland’s presence in oil-and-gas-rich Central Asia. Chinese oil executives have even begun courting Ecuador and Colombia in hopes of buying oil in the U.S.’s backyard. “Latin Americans feel frustrated that the U.S. has virtually ignored the region, so turning to China is prudent and will pay financial dividends down the line,” says Cynthia Watson, a professor of strategy at the National War College in Washington, D.C.
China’s stepped-up oil diplomacy and its increasingly competitive stance in world oil markets are already creating friction with countries such as India, which like China has a bustling economy and a growing oil habit to satisfy. Earlier this year, ONGC Videsh, the overseas investment arm of India’s largest oil-and-gas producer, was on the verge of completing a deal that would have given it an 11% stake in a proven oil field in Sudan. While the company waited for the necessary approval from India’s Cabinet, CNPC swooped in with an offer that was reportedly 17% higher, and snatched the oil deal for China….
Kang Wu, an expert at the Honolulu-based East-West Center on China’s oil use, predicts China’s annual growth rate in oil consumption will fall to 9% next year from 15% this year because of slowing economic growth. Over the long term, experts say China’s energy appetite will only continue to expand. If its oil demand keeps growing at an average rate of 7% a year, as it has since 1990, the country in less than 20 years will be consuming 21 million barrels a day—matching the current consumption of the U.S.
China’s car population of 20 million increased by 2.5 million this year alone, and China’s need for foreign oil to fuel its growth will produce ever stranger bedfellows in the next few years. (It is interesting to speculate on what the Al Qaeda’s of the world think of the billion plus people of China — what’s their strategy to impose 7th century Islam over there?)
Third, in national strategy. China is following a national strategy like that in the Meiji restoration in Japan, according to Helprin, strong ecomony and military might. Even discounting the military part, the Chinese strategy resembles that of post-war Japan of targeting industries and taking a long term approach. In an excellent article on Free Trade and the Bush administration’s lapses therefrom, professors Jagdish Bhagwati and Arvind Panagariya of Columbia note (in the WSJ) the willingness of China to accede to “voluntary import restraints” just as Japan did in the 70’s and 80’s in autos, to lessen opposition to its global might in textiles. The professors then note something very interesting:
As it happens, the fear of China has begun to moderate in the major poor nations, even as the rich countries are seized by it. India and Bangladesh, which feared China, are confident that they can compete with it. Caught between decelerating growth in the number of young workers — a result of the one-child policy — and the massive demand for labor generated by double-digit economic growth over 25 years, wages in China are finally rising. At the same time, both Bangladesh and India plan investments in big mills where scale economies obtain and modernization is possible: this induced innovation is indeed what competition often does, and protectionists fail to appreciate.
The implication of this demographic imperative is consistent with, and accelerating of, China’s need to move up the industrial food chain to produce more world-class capital-intensive products, just as Japan progressed from cheap toys to steel and autos. A BCG-Wharton review discusses this, and an interesting paper by professors Lan Xue and Peter Sheehan of Melbourne University details how a neo-Japanese development strategy has to take into account the “knowledge economy” in a way that was not necessary a generation or two ago. In sum, China faces a more difficult task than the Japanese had at this stage of their industrial development because of China’s need to produce smart products in a knowledge-based, service economy world — this will be a new chapter in an old script.
Fourth, the rise of China signals the end of post-modernism. I have no idea if this is true, but the idea is so great I just had to include it. Arthur Waldron raises it in a Claremont book review of a biography of Mao by a former fellow traveler:
[T]he post-Maoist China specialists have been among the best in the academic world at dealing with the utter collapse of Marxism and Communism, in whose warm hegemonic status they had long comfortably basked. For it is hard not to suspect that the whole phenomenon of deconstruction and post-modernism, with its attack on the idea of objective truth, is really an elaborate rear guard action to somehow reclaim something of Marxism by denying the possibility of any philosophy being actually correct. The irony of course is that Marxism was long second to none in its self-confidence, in its belief both in its empirical foundation and its philosophical arguments.
China’s emergence as a very large capitalist success story would a staggering repudiation of communism and the communism-lite of the EU and faculty lounges.
Conclusion
People have been talking about the rise of China for a long time, but it has seemed like a lot of talk for the most part. Now, it seems to have reached the Walt Rostow take-off point. The Chinese economy has reached critical mass in scale, economic growth and complex involvement in global affairs, as evidenced by its enormous and permanent increase in oil imports and the politics of oil imports. Furthermore, with real wages rising in China, and the country’s need to continue up the value-added food chain in economic products and services, its presence in large industries will become more and more visible. Finally, China will likely increase its presence internationally in the next decade through the use of its huge surpluses in acquisitions of western companies, as the Japanese did in the 1980’s.
Of course, all of this could come a cropper if China wastes its time on imperial foolishness like invading Taiwan. It would be better off just buying South America.