Economic Focus – China, the Hungry Dragon

With a fifth of the world’s population, China’s hunger for natural resources is stunning indeed. Recent articles from the Economists states that China is hastily consuming half of the world’s pork, half of its cement, a third of its steel, and over a quarter of its aluminium.

The International Energy Agency expects China’s imports of oil to triple by 2030 (which would lead to higher sustained oil prices). Steel production rose by 15% in 2007 (similar growth in 2006) making China the world’s largest producer (it was previously the world’s largest importer) with 37% of global output. China’s domestic production of iron ore which doubled since 2003 has also made China the world’s largest producer.

Deng Xiaoping’s reform for “socialism with Chinese characteristics”. seems to be working miracles for the once impoverish country. However, China is destined to become a unique world power as it is the first country to be rich (aggregate terms) and poor (per capita terms) at the same time. Furthermore, the gap of China’s rich and poor is starting to widen dramatically.

According to Lawrence Summers, the average European living standards during the Industrial Revolution rose about 50% during his lifetime (around 40 years). In China, the average person’s living standards are set to rise by 10,000% in one lifetime! In a period of two decades, China has experience the same degree of industrialization, urbanization and social transformation as Europe did in two centuries (Newsweek, 31st December 2007).

Equally impressive is the fact that China has lifted 400 million people out of poverty. This accounts up to about 75% of the world’s total poverty reduction over the last century.

Frederic Mishkin (2007) stated that China’s supernatural growth is similar to that of the Soviet Union in its early days. Both countries achieved economic success by shifting underutilised labour from less productive sectors like agriculture into more productive sectors like manufacturing. However, as the pool of underutilised labour dried up, the Soviet Union’s growth slowed down dramatically as well.

The reason for this is that the Soviet Union did not let their financial sector grow in lockstep with their economy. As the labour force reach the peak of its productivity, the Soviet economy failed to allocate resources to the most productive investments. To compare China and the old Soviet Union gives us a picture to what would happen should China fail to improve its financial sector.

 

Facts – BBC

  • Full name: People’s Republic of China
  • Population: 1.33 billion (UN, 2007)
  • Capital: Beijing
  • Largest city: Shanghai
  • Area: 9.6 million sq km (3.7 million sq miles)
  • Major language: Mandarin Chinese
  • Major religions: Buddhism, Christianity, Islam, Taoism
  • Life expectancy: 71 years (men), 75 years (women) (UN)
  • Monetary unit: 1 Renminbi (yuan) (Y) = 10 jiao = 100 fen;
  • Main exports: Manufactured goods, including textiles, garments, electronics, arms
  • GNI per capita: US $1,740 (World Bank, 2006)
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