After a great deal of time spent travelling in China, reading about China and thinking deep thoughts about China, I have come to the conclusion that the most profound thing one can say about it is this: China is exceedingly big. This may seem like an awfully trite observation and, frankly, a terrible waste of the Financial Times’ money. But China’s sheer size helps to explain much about the country, from its impact on global commodity markets to the fact that one of the world’s poorest countries is now routinely mentioned in the same breath as the (still) mighty US. El Salvador, a nation with roughly the same standard of living as China, barely gets a look-in.
China’s 1.3bn multiplier effect makes almost everything it does seem extravagantly important. In some cases, its scale changes the very nature of the obstacles that confront it and the opportunities it can create.
Blow to China over Potash hopes - Oct-05.China growth hopes boost Asian markets - Oct-04.When a Billion Chinese Jump - Oct-04.More from David Pilling - Aug-30..China’s size is sometimes a distinct drawback. Take the controversy over the renminbi and China’s trade surplus with the US. In fact, China’s path to economic take-off has been fairly standard. Like Japan, South Korea and Taiwan before it, it has relied on external demand to kick-start industrialisation, bending the rules in its favour when that has suited its development needs. But unlike those countries, it has been “found out” much earlier. By the time Japan was causing serious trade friction with the US in the 1980s, it had all but caught up with western living standards. China is provoking anger on Capitol Hill at a time when its per capita income, even on a purchasing power parity basis, is just one-seventh of US levels. If only China were a 10th the size, no one would even have noticed the level of its (non-convertible) currency.
In other areas, too, size counts against Beijing. Its outsized need for oil, iron ore, bauxite, lumber and so on affects the very commodity markets on which it relies. To get an idea of the scale of Chinese demand, look at coal, where China imports just 3 per cent of its needs. Even so, it accounts for roughly one-fifth of global seaborne trade in that commodity. Similarly, it consumes roughly half the world’s cement, a third of its steel and a quarter of its aluminium. Each year, it adds 105GW of power to its electricity grid, greater than the entire generating capacity of India. All of this has a material – not to say decisive – effect on the prices of the commodities on which it depends. Chinese demand, for example, helped to propel oil to an uncomfortable $140 a barrel in 2008 and has kept a floor under it ever since.
China’s hunger for commodities also has business, as well as diplomatic, consequences. Beijing’s chagrin at paying what it considers monopoly prices for iron ore led it to pounce on Rio Tinto, $19.5bn in hand, causing friction with Australia. It has backed Sinochem’s attempt to trump BHP Billiton’s $39bn hostile offer for Canada’s PotashCorp because of its concerns about food security. Likewise, it has scoured Africa, central Asia, Latin America and sometimes-hostile corners of the globe for oil and other resources, thrusting it into tricky areas of foreign policy before it might have wanted.
There are also genuine questions about whether the world has enough resources – at whatever price – to satisfy China’s gargantuan appetites. If every Chinese person lived like an American, not only would there be a terrible shortage of Hawaiian shirts and loud trousers, but, according to the Earthwatch Institute, it would also mean raising global oil production by 20m barrels a day to 105m and increasing the output of grain and meat by between two-thirds and four-fifths.
The vast scale of China threatens to constrain its growth. But its size also confers great advantage. China’s huge internal market gives it the economies of scale to develop globally competitive industries from cars to high-speed rail. The sheer size of its economy has made Hong Kong a globally important financial market and could, in just a few years, see Shanghai become a top-three exchange in terms of market capitalisation of its listed companies.
China’s size has been crucial in getting it this far. Its seemingly limitless supply of cheap labour was a magnet for foreign investment and technology. Now, its potentially endless queues of shoppers are having the same effect. As more and more Chinese are sucked into the urban workforce, China has the opportunity to turn them into purchasers of its own products, weaning its economy off the export-dependency that still afflicts Japan. China’s size means it can’t do anything without making waves. But it also gives it a much better chance of riding out the rough seas ahead.
