Like it or not, China is coming on strong and poised to become an ever bigger part of the world in the future.
SHANGHAI, Jan. 25 Led by surging exports, China’s economy grew by 9.9 percent last year, the government announced Wednesday, underscoring the swiftness by which this once insular communist country has remade itself into a global trading power.
The rapid expansion appears to move China’s economy ahead of those of Great Britain, France and Italy to become the world’s fourth-largest, although many countries have yet to report their final 2005 economic data. Over the past decade, China’s output has more than doubled in size as the country’s transition toward capitalism has progressed, turning farmers into factory workers and linking the fortunes of its people to the appetites of shoppers in the United States, Europe and Japan.
(emphasis added)
Big news ? Absolutely, though there is some reason to think that all is not well in the Middle Kingdom:
State data paint a troubling picture. Steel capacity already outstrips domestic demand by 120 million tons a year, and new mills that would add an additional 70 million tons are under construction, according to the National Development and Reform Commission, a unit of China’s governing State Council. Chinese automakers saw profit margins plummet last year as ultra-low-priced vehicles came on the market, and as dramatic expansion brought production capacity to 2 million more than China’s annual sales.
Still, some say fears of overcapacity are overblown: Even as the supply of everything from aluminum to motorcycles swells, the underlying demand for the trappings of modern life within this land of 1.3 billion people should not be underestimated. China’s appetite for new housing, roads and vehicles will eventually put the extra plants to work, some economists say.
Eventually, perhaps, but when ? This, I think, is the fundamental problem that China may face in the future. While it has adopted capitalism in some forms it remains, at its essence, a command economy governed by the principles of socialism. Arguably, he decisions that have been made about expansion have not been guided by the market as much as they have been guided by the desires of the Chinese leadership to grow their economy as fast as possible. The problem with this strategy is that a rapid growth could lead to a rapid retraction if a point is reached where, for example, supply outsrips demand. The consequences of an economic crisis in China, whether brought about by internal contradictions or external stress (i.e., an oil spike caused by a confrontation with Iran) should not be underestimated.
And China’s thirst for oil could become the defining issue in coming years:
China’s growth has prompted Beijing to dispatch state oil firms around the globe in search of new energy supplies. This has stoked a historic rivalry with Japan for access to Russia’s Siberian oil fields. It has sent Chinese investment into Africa, Latin America and Indonesia, and has provoked accusations in Washington that China’s thirst for energy threatens U.S. interests. Chinese demand is a key factor behind the recent spike in world oil prices.
And, as stated, the effect on China of, say, $ 100 per barrel oil should not be underestimated.
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