"In the long run - only short term forecasting is reliable!"
Can China rescue world growth and cope with climate problems?
Analysis and comments by
Globalist and senior analyst Jorn Thulstrup, MA (Econ)
There’s a widespread perception that China can rescue growth in the world economy and, within a number of years, overtake the USA as the world’s largest economy in terms of GNP. These expectations are grounded in the high growth rates and significant balance of payments surpluses the country has achieved for many years and which have provided financial reserves four to five times greater than the USA – in 2008 alone China had a balance of payments surplus of USD426bn, compared to a USD673bn deficit in the US.
Major contributions to Chinese growth from the West
In 1978, when Deng Xiapong opened the floodgates for foreign investment, Japan, the US, and Europe quickly relocated machinery, knowledge resources and production processes to China, where labour was cheap and willing. Container freight and low oil prices allowed the cheaper produced goods to be transported faster, safer and cheaper to markets across the world, thereby keeping world inflation low and benefiting consumers, including many in China – but certainly not all.
The majority of Chinese people, around 60 per cent, continue to live in the countryside with enough for basic nourishment but no proper schools, health services or care for the elderly. These citizens have for years been subjected to assaults and infringements from corrupted local authorities laying violent claim to their land, and continue to be so. Many have problems with pollution and water supplies and have been put under even more pressure during the economic crisis by family members returning home after being made unemployed in cities.
There has for years been widespread social unrest in China, mainly minor episodes, but numbering thousands and generally not reported in the international press. On the 27th of July last, the Financial Times reported an uprising in north-eastern China, where workers at a state-owned steelworks, Tonghua Iron & Steel, beat the CEO to death after he threatened most of the 50,000 employees with redundancy as part of a privatisation and modernisation process. This is more than a minor episode. The recent racially motivated riots in the Xinjiang autonomous region, where Han Chinese migrants came under attack from the ethnic Turcic-speaking Uighur Muslim population, is of another character involving conflicts with minorities and indicating risks of breakaway tendencies.
Chinese breakdown to mirror Soviet Union’s?
In the Financial Times on the 14th of July, leading commentator Gideon Rachmann poses the rhetorical question of whether China could one day disintegrate, just as the Soviet Union did in 1991 – but answering the question himself he claims it isn’t imminent and that a comparison with the USSR is only partially relevant.
A major difference between China and the USSR is that the citizens of the USSR, as early as the 1970’s, started to consider the communist leaders to be corrupt and incompetent. The USSR-system provided major achievements economically, technologically and in welfare after World War II and up to the end of the 1960’s. However, from 1970 onwards it failed to provide continued real growth and welfare. Apart from the military and energy-related industrial complexes the system did not deliver. The majority of USSR citizens gradually turned against the system – or, as often said: “They (the communist leaders) pretend to pay, we pretend to work”.
Increased oil prices in 1973, 1979 and again in 1983 kept the system running, but when oil prices collapsed in the beginning of 1986 the USSR was doomed. The few of us who predicted that were not believed before it finally happened in December 1991.
China cannot solve social problems by pumping and exporting oil, gas and other natural resources as the USSR did and Russia, to a large extend, still does. China’s main resources are people, who have to receive further education and become frontrunners in science and technology – and the Chinese leaders are very much aware of that. I discussed the issue at length already in the spring 1991 with the leaders of China’s Institute of Economy, The State Planning Commission, The State Science and Technology Commission and Beijing Institute for International Strategic Studies.
What is fairly sure is that China in the years to come will be fully occupied with domestic challenges, including major demographic challenges as a growing proportion of the population becoming older. There won’t be the reserves of food, energy and other raw materials needed to behave in an imperialistic, militarist manner. China has very large coal reserves, but doesn’t possess sufficient reserves of oil, gas and other raw materials to provide the growth that is necessary to ensure a growing standard of living for the majority of its 1.3 billion inhabitants. The greatly increased commitment to Africa, an effort to ensure raw materials, primarily energy but also food, is a necessity bordering on self-defence. It shows that the Chinese leaders are well aware of the challenges they are facing.
Savings a priority
Hopes that the Chinese population can be convinced to save less and spend more, thereby ensuring world economy growth, is most probably an illusion. Chinese people save up so they have the means to buy education for their children, health services and care for the elderly. It would take decades and make serious inroads into Chinese reserves to establish these services as common goods and without that most of the 1.3 billion people, who today consume just one-tenth of what 304 million crisis-hit American households do, will continue to save a large part of there income.
The security-political threat
If China doesn’t succeed in ensuring growth and welfare for its population then there’s a risk of increased social unrest in China. This development might tempt Beijing to play the ‘external threat card’ – that is, utilising a perceived threat from outside as a reason to combat domestic unrest with increased force. It could be in the form of harassment of US naval vessels, which have already been seen in international waters off China, renewed unrest in the country’s relationship with Taiwan, or border disputes, both on land and at sea, with Japan and Russia. Not because Chinese leadership really wants conflict with the surrounding world, because they are well aware of global interdependence, but to cope with domestic problems.
China and the Climate Conference
China has been hesitant in giving a binding obligation to curb its CO2 emissions, not because Beijing doesn’t want to be part of an overall commitment but because it’s not really viable for China to cut down on future emissions. The widespread pollution that plagues major parts of the country as a result of the many coal-fired power plants is something China would prefer to handle differently. However, after pumping up energy consumption for years in an effort to produce goods for the rest of the world, China today suffers virtually insurmountable problems in energy and climate issues compared to the USA, Europe and Japan.
China has been hesitant in giving a binding obligation to curb its CO2 emissions, not because Beijing doesn’t want to be part of an overall commitment but because it’s not really viable for China to cut down on future emissions. The widespread pollution that plagues major parts of the country as a result of the many coal-fired power plants is something China would prefer to handle differently. However, after pumping up energy consumption for years in an effort to produce goods for the rest of the world, China today suffers virtually insurmountable problems in energy and climate issues compared to the USA, Europe and Japan.
Intellectual circles in the west may be focussing on reducing energy consumption, but this is a luxury that Beijing can’t afford – China needs to use even more energy to maintain the growth that is necessary and this won’t happen by agreeing to reduce CO2 emissions. China has massive potential to become more energy-effective and is striving towards cleaner energy sources but is unable to phase-out coal-powered energy within a foreseeable future.
It’s the same story, although even more accentuated, in India, as US Secretary of State Hillary Clinton was able to ascertain for herself during a recent visit to India. If China and India aren’t able to live up to the demands being placed on them then the US, for political reasons, will face major problems living up to its own pledges. However, as the Financial Times stated on its front page on August 1 2009, India’s opposition to making absolute reductions in the level of its own emissions doesn’t make an agreement in Copenhagen impossible. But it does make anything more than a symbolic agreement extremely difficult and the COP15 Climate Conference in Copenhagen risks being a ritual event, on a par with The Kyoto Accord that ultimately has had no real influence on the world’s CO2 emissions.
Until now it’s only the global economic crisis, with its major decrease in energy consumption, that has had any significant effect on the emission of greenhouse gases and sooner or later we’ll recover, as we always do. As our US Consumer Demand Index clearly indicates, it will be sooner rather than later.
Jørn Thulstrup is the Owner, CEO and publisher of
News ex-press and Consumer Demand Index.
News ex-press and Consumer Demand Index.
There are those who hope for Chinese growth, whilst there are others who fear it. However, there are indications that those in the first camp will be disappointed, while those fearing that a Chinese economic super power will subsequently lead to a military super power can relax.