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The Economist: China is a hungry dragon

By Erica Schlaikjer ⋅ March 18, 2008 ⋅ Post a comment

Anyone see this week’s issue of The Economist?

Read the introduction for a good overview of what the 14-page special report entails:

China is bound to consume enormous amounts of raw materials as it develops. But given how polluted the country already is, and how much unrest that pollution is causing, it should curb its hunger for resources. A less wasteful development strategy would be a healthier one.

Here are some major points taken from different sections of the report, titled, “The New Colonialists,” referring to China’s influential global reach.

“The new colonialists“
Problems: “China’s hunger for natural resources is causing more problems at home than abroad,” among them, a “supercycle” in the commodities industry, foreign entanglements, pollution, disease, premature deaths, low agricultural yield, and social unrest.
Recommendation: “China could—and should—use its influence to curb the nastiest of its friends” and “It should curb its hunger for resources.”
“A ravenous dragon“
Main point: “China’s hunger for natural resources has set off a global commodity boom. Developed countries worry about being left high and dry, but the biggest effects will be felt in China itself.”
Details: Chinese authorities are investing in countries such as Congo, Indonesia and Canada to obtain materials to sustain its economic growth; the country’s super-consumption has pushed up the price of metals, fuels and grains all over the world; China’s sudden global prominence is creating a lot of anxiety about the prospect of corruption, economic mismanagement, repression and instability, and it is also contributing to a heightened sense of competition, especially among Western democratic countries; however, the Economist maintains that “concerns about the dire consequences of China’s quest for natural resources are overblown.” Finally, the most important issue to deal with is China’s own struggle to sustain its own “gluttonous” consumption habits, as it copes with an increase in foreign entanglements and imports, as well as a depletion of natural resources.
“Iron rations“
Summary: The story of Shougang Group, a steel company, and Daqing, one of the world’s largest oil reserves, exemplifies the country’s voracious demand for commodities…and the implicit danger in depleting limited resources.
“The lucky country“
Main idea: China’s demand for natural resources is playing a big role in Australia, the world’s biggest exporter of iron ore. Some pundits worry that Australia will become over-dependent on China, but most Australians are enthusiastic about this economic relationship.
“Mutual convenience”
Dilemma: “IN POORER countries such as Congo, China’s hunt for resources has more complex effects. On the one hand, Congo’s long-deprived citizens are in much more desperate need of trade, investment, economic growth and the rising living standards they might bring with them. On the other hand, its corrupt and underfunded government is much less able or inclined to manage China’s engagement for the benefit of its people.”
The Economist’s perspective: While some view China’s interest in Congo (for things like copper, diamonds and gold) as being a new form of colonialism, many Congolese politicians welcome the business partnership, and some even think it will signal to Western foreigners to “drop their ‘patronising attitude, that we know what’s best for you.’” It’s also important to remember that China is not the only country interested in Congo’s resources, and it is still unclear whether or not some business negotiations will move ahead.
“No strings“
Main point: Developing countries enjoy doing business with China because they receive diplomatic support, investment and increased revenue, and they are also able to assume more leverage in their business dealings.
“Intrepid explorers“
Question: “DO CHINA’S state-owned mining and oil firms have an unfair advantage over their Western rivals?”
Answer: “Chinese firms do have access to countries that many Western ones do not, such as Sudan and Iran—but if they are exploiting oil that would otherwise go undeveloped, they are increasing the global supply and so reducing the price.”
Bottom line: “Chinese firms are not as invincible as they are made out to be.”
“A large black cloud“
Main point: China’s government wants to slow economic growth for the sake of self-sufficiency, protecting the environment and ensuring social equality. But many schemes are only temporary fixes, and the economic incentives to continue environmentally harmful practices overpower the government directives. Basically, poor enforcement and a lack of local support or authority, coupled with unending growth and consumption, means the “government is fighting a losing battle.”
“The perils of abundance”
Purpose: To explain China’s surge in energy consumption.
Explanation #1: “Some believe that China has reached a stage in its development when labour becomes relatively scarce and growth begins to rely more heavily on investment. At this turning point, the theory runs, shortages of labour lead to rising wages and so to higher incomes. Consumers with more spending power, in turn, start to buy homes, cars and televisions, gobbling up huge volumes of natural resources in the process.”
Explanation #2: “…the boom in heavy industry is a product mainly of poor regulation rather than of inexorable demographic forces. …China’s development is becoming more capital-intensive not so much because labour is getting scarce but because capital is too abundant.”