China's growth is a global problem
By Martin Walker
UPI Editor
WASHINGTON, Jan. 25 (UPI) -- For the past decade and more, the compelling issue of geopolitics has been the rise of China.
While this was traditionally seen by the United States as a potential national security threat, the question of China is fast becoming a matter of geo-economics, and this will be just as big a concern for U.S. national interests.
Last week, Chinese authorities disclosed that the economy in 2003 had grown by 9.1 percent, which meant that China alone supplied about one-third of the additional growth generated by the world economy, more than double the contribution of the eurozone. China has also just become the world's second largest importer of oil, after the United States, and now consumes more than one-third of the world's steel and 55 percent of its cement.
China's breakneck growth is imposing new patterns on the global economy. The country's commodity imports rose to nearly 7 percent of GDP in 2003. Its growing love affair with the automobile not only feeds its hunger for oil, it also increased China's imports of car components by 84 percent last year, and China imported 63 percent more cars -- to the great benefit of Japanese and Korean exporters. Over the past five years, China's machinery imports have more than doubled, to the great benefit of German, U.S. and British exporters.
China has now joined the United States to become one of the two great locomotives of global growth. Europe is sluggish and Japan may just be recovering from a decade of near stagnation. If Japan's recovery takes hold, it will be thanks to China's hunger for imports.
The whole of the rest of the world now has a direct economic interest in China continuing to play this role, and the United States may be among the most dependent of all.
That is because it is importing $1,550 billion of goods each year but exporting just over $1,000 billion. That record trade deficit of $550 billion is being financed largely by China and Japan, buying U.S. treasury bonds and securities. Their demand for dollars helps keep the greenback stronger than it otherwise would be and thus helps America continue to buy Asian exports while keeping their currencies weaker -- which lowers their prices to American consumers.
Last year Japan's central bank spent a staggering $187 billion to help strengthen the dollar and prevent the yen from rising too far. Japan is now gearing up to spend even more, this month pumping an unprecedented $38 billion into the dollar in just one week. As a result, Japan now has $674 billion in foreign exchange reserves, more than any other country at any time in history.
But China is catching up, with almost $400 billion. Last year, the People's Bank of China alone financed half of America's current-account deficit. Throw in Taiwan's $180 billion and India's $104 billion and Asia's foreign-exchange reserves now total $1,800 billion, the vast bulk of it in dollars that are steadily losing their value. Nobody even wants to think of the consequences should China and Japan decide to dump these shrinking dollar assets.
It is at this point that China once again becomes a national security issue for the Bush administration. Even a threat by Beijing to sell dollars, perhaps timed for some new peak in tension with Taiwan, would have a chilling effect on American decision-making. In a sense, the threat does not even have to be made. A rich China with a peaceful foreign policy looms just as large in U.S. national security thinking as an impoverished China, however bellicose.
When President George W. Bush was campaigning for office, the woman who would become his national security adviser, Condoleeza Rice, forecast trouble ahead in a seminal essay in foreign affairs that drafted the international priorities of the incoming Bush administration.
"China is a potential threat to stability in the Asia-Pacific region," she wrote. "China would like to alter Asia's balance of power in its own favor. That alone makes it a strategic competitor, not the 'strategic partner' the Clinton administration once called it. We should never be afraid to confront Beijing when our interests collide."
The fact is that America may no longer be able to afford to confront China, even when interests collide. The vigorous Chinese economy is the central new fact of international life. This has implications that reach far beyond the ability of the United States to continue supporting Taiwan, and even beyond the degree to which China's vast market is imposing a magnetic pull on other Asian countries that have traditionally been reliable U.S. allies.
Take commodity prices -- and industrial commodity prices in general are rising at 29 percent a year. The steel price has reached a 30-year high, fueled by Chinese demand. Shipping rates have gone through the roof, thanks to China's import hunger. The rubber price has just topped $1,250, doubling since 1997, largely because China imported 1.2 million tons of rubber in 2002 and 1.5 million tons last year, and is expected to buy more than 2 million tons this year. (To put these import levels into perspective, South Korean companies used just 240,000 tons of rubber a year.)
The oil price may be the most striking example. Ten years ago, when China was much poorer, the average Chinese consumed one barrel of oil a year while the average Taiwanese consumed 14 barrels, the average German 35 barrels and the average American 55 barrels. Last year, the average Chinese consumed nearly five barrels -- which meant the country imported 92 million tons of oil last year, and expects to import far more this year -- which explains why the oil price has risen to close to $35 a barrel. If China starts to consume oil like the Taiwanese -- not to mention the Germans or Americans -- then the implications for the oil price are alarming.
The environmental implications may be even more grim, not just because of the effect on China's soaring oil consumption on pollution and global warming, but because 1.3 billion Chinese are clambering up the food chain from a diet that was mainly rice just a decade ago to the Big Macs and Kentucky Fried Chicken meals they see as their just reward for hard work and enterprise. One result has been the doubling of the price of soya beans, to $360 a ton. Another is the way that China has just become Argentina's biggest customer. Yet another has been the emergence of an obesity problem among Shanghai schoolchildren.
When 1.3 billion Chinese (not to mention a billion Indians, whose economy is also growing at 7 percent a year) all want to live like Americans, the global economy may boom, but the global price structure and the ecosystem are both going to reel from the impact.The opportunity is glorious, but the challenges of managing China's growth are more than daunting.
What was once seen mainly as an issue for the Pentagon and State Department, the implications of China's surge to prosperity are now clambering high up the agenda of the U.S. Treasury, of the departments of Agriculture and Commerce and Environment. No institution is immune, because China has awoken and the world is going to have to adapt.
By Martin Walker
UPI Editor
WASHINGTON, Jan. 25 (UPI) -- For the past decade and more, the compelling issue of geopolitics has been the rise of China.
While this was traditionally seen by the United States as a potential national security threat, the question of China is fast becoming a matter of geo-economics, and this will be just as big a concern for U.S. national interests.
Last week, Chinese authorities disclosed that the economy in 2003 had grown by 9.1 percent, which meant that China alone supplied about one-third of the additional growth generated by the world economy, more than double the contribution of the eurozone. China has also just become the world's second largest importer of oil, after the United States, and now consumes more than one-third of the world's steel and 55 percent of its cement.
China's breakneck growth is imposing new patterns on the global economy. The country's commodity imports rose to nearly 7 percent of GDP in 2003. Its growing love affair with the automobile not only feeds its hunger for oil, it also increased China's imports of car components by 84 percent last year, and China imported 63 percent more cars -- to the great benefit of Japanese and Korean exporters. Over the past five years, China's machinery imports have more than doubled, to the great benefit of German, U.S. and British exporters.
China has now joined the United States to become one of the two great locomotives of global growth. Europe is sluggish and Japan may just be recovering from a decade of near stagnation. If Japan's recovery takes hold, it will be thanks to China's hunger for imports.
The whole of the rest of the world now has a direct economic interest in China continuing to play this role, and the United States may be among the most dependent of all.
That is because it is importing $1,550 billion of goods each year but exporting just over $1,000 billion. That record trade deficit of $550 billion is being financed largely by China and Japan, buying U.S. treasury bonds and securities. Their demand for dollars helps keep the greenback stronger than it otherwise would be and thus helps America continue to buy Asian exports while keeping their currencies weaker -- which lowers their prices to American consumers.
Last year Japan's central bank spent a staggering $187 billion to help strengthen the dollar and prevent the yen from rising too far. Japan is now gearing up to spend even more, this month pumping an unprecedented $38 billion into the dollar in just one week. As a result, Japan now has $674 billion in foreign exchange reserves, more than any other country at any time in history.
But China is catching up, with almost $400 billion. Last year, the People's Bank of China alone financed half of America's current-account deficit. Throw in Taiwan's $180 billion and India's $104 billion and Asia's foreign-exchange reserves now total $1,800 billion, the vast bulk of it in dollars that are steadily losing their value. Nobody even wants to think of the consequences should China and Japan decide to dump these shrinking dollar assets.
It is at this point that China once again becomes a national security issue for the Bush administration. Even a threat by Beijing to sell dollars, perhaps timed for some new peak in tension with Taiwan, would have a chilling effect on American decision-making. In a sense, the threat does not even have to be made. A rich China with a peaceful foreign policy looms just as large in U.S. national security thinking as an impoverished China, however bellicose.
When President George W. Bush was campaigning for office, the woman who would become his national security adviser, Condoleeza Rice, forecast trouble ahead in a seminal essay in foreign affairs that drafted the international priorities of the incoming Bush administration.
"China is a potential threat to stability in the Asia-Pacific region," she wrote. "China would like to alter Asia's balance of power in its own favor. That alone makes it a strategic competitor, not the 'strategic partner' the Clinton administration once called it. We should never be afraid to confront Beijing when our interests collide."
The fact is that America may no longer be able to afford to confront China, even when interests collide. The vigorous Chinese economy is the central new fact of international life. This has implications that reach far beyond the ability of the United States to continue supporting Taiwan, and even beyond the degree to which China's vast market is imposing a magnetic pull on other Asian countries that have traditionally been reliable U.S. allies.
Take commodity prices -- and industrial commodity prices in general are rising at 29 percent a year. The steel price has reached a 30-year high, fueled by Chinese demand. Shipping rates have gone through the roof, thanks to China's import hunger. The rubber price has just topped $1,250, doubling since 1997, largely because China imported 1.2 million tons of rubber in 2002 and 1.5 million tons last year, and is expected to buy more than 2 million tons this year. (To put these import levels into perspective, South Korean companies used just 240,000 tons of rubber a year.)
The oil price may be the most striking example. Ten years ago, when China was much poorer, the average Chinese consumed one barrel of oil a year while the average Taiwanese consumed 14 barrels, the average German 35 barrels and the average American 55 barrels. Last year, the average Chinese consumed nearly five barrels -- which meant the country imported 92 million tons of oil last year, and expects to import far more this year -- which explains why the oil price has risen to close to $35 a barrel. If China starts to consume oil like the Taiwanese -- not to mention the Germans or Americans -- then the implications for the oil price are alarming.
The environmental implications may be even more grim, not just because of the effect on China's soaring oil consumption on pollution and global warming, but because 1.3 billion Chinese are clambering up the food chain from a diet that was mainly rice just a decade ago to the Big Macs and Kentucky Fried Chicken meals they see as their just reward for hard work and enterprise. One result has been the doubling of the price of soya beans, to $360 a ton. Another is the way that China has just become Argentina's biggest customer. Yet another has been the emergence of an obesity problem among Shanghai schoolchildren.
When 1.3 billion Chinese (not to mention a billion Indians, whose economy is also growing at 7 percent a year) all want to live like Americans, the global economy may boom, but the global price structure and the ecosystem are both going to reel from the impact.The opportunity is glorious, but the challenges of managing China's growth are more than daunting.
What was once seen mainly as an issue for the Pentagon and State Department, the implications of China's surge to prosperity are now clambering high up the agenda of the U.S. Treasury, of the departments of Agriculture and Commerce and Environment. No institution is immune, because China has awoken and the world is going to have to adapt.
