According to global economist David Hale, the current economic status in China "is likely to be as transforming an event in geopolitics as America's arrival as a world power during the early decades of the 20th century."
The United States has now fallen behind China in many commodity markets. China is now the price setter for many commodities, including copper, iron ore, aluminum, and platinum.
As of late 2003, China's industrial production climbed 18 percent, while export growth soared 40 percent. This year, China's world exports are expected to out-shadow Japan's exports.
"China's economic takeoff and new role in the global-commodity markets has occurred so quickly that the United States and other countries have not yet fully come to terms with it," Hale asserted. Hale's article, "China's Growing Appetites," is published in the latest issue of Washington, D.C.-based international-affairs journal The National Interest.
Hale indicates that China's investment-to-GDP ratio is the highest in the world, nearly 45 percent, compared to most developing countries that are stuck anywhere from 20-30 percent. As a result of the economic surge, China is aggressively pursuing raw materials.
One reason for China's massive ingestion of raw materials is the country's movement toward urbanization. Steel ranks high among the materials that China needs to convert 60 percent of their rural landscape to an urban cityscape. At 220 million tons per annum, China's steel production is more than the United States and Japan combined.
"Indeed, by the period 2015-20, China's share of global metal consumption could be 50 percent larger than America's," Hale said. Hale believes rapid urbanization is also likely to use up China's copper supply and cause China to turn to the global market for the metal.
Urbanization of China's countryside has also made China the world's largest producer and consumer of cement, using six times as much per year as the United States.
But the influence of urbanization goes further than constructing modern structures.
World thermal coal prices rose by 20 percent when due to huge domestic demand, China severely cut its thermal coal exports from about 80 million tons in 1991 to 74 million tons in 2003. It could export as little as 55 million tons in 2004.
China's need for raw materials has led to huge price increases since 2002 for many commodities, and has also driven shipping prices up. "The impact of China's raw material demand on global trade has been so dramatic that shipping rates have quadrupled during the past 18 months," Hale reported.
China is also hungry for oil, and has overtaken Japan as the world's second-largest oil consumer. China's need for oil is likely to encourage a trade relationship with Russia, but the agreement may not be far-reaching due to complications linked to Russia's eastern territory, previously under Chinese control during the 19th century, Hale said.
In fact, "If the United States and Europe make it difficult for China to pay for oil imports with exports of manufactured goods, China could decide to pursue a more aggressive foreign policy to obtain oil from disputed territories," Hale reported.
On the other hand, Kazakhstan has welcomed Chinese involvement in their oil industry. The China National Petroleum Company has invested $700 million in Kazakhstan.
Hale also forecasts that China's economic boom will launch the country toward development of foreign policy and military strategy to protect access to their raw materials. China will look to expand military ties with commodity-exporting countries in Latin America, Africa, and the Middle East, and will also be forced to develop a strong blue-water navy, according to Hale.
Already, Hale reports that China has deployed 4,000 troops to civil-war-ridden Sudan to guard its investment in an oil pipeline.
According to a release from the China National Petroleum Company, the 770-mile-long pipeline (1240 km)will have a first-phase transportation capacity of 10 million tons per year.
China is also likely to emerge as a major player in financing development of natural resources in developing countries. In Saudi Arabia, American firms were recently blocked from investing in its new natural gas industry in order to allow Chinese firms to invest. With political worries over Israel and terrorism, "If the U.S. relationship with the Saudis continues to deteriorate, China could emerge as a more important player in providing them with security," Hale said.
There is concern that China is destabilizing the global economy because it is adding too much demand and too little supply, but China denies any such negative economic influence.
According to a release by the Embassy of the People's Republic of China, a report initiated by the Federal Reserve found "the impact of Chinese exports on global prices has been, while non-negligible, fairly modest."
The release reports, "China's global-trade surplus last year reached only $16 billion -- a better balance of supply and demand than the United States' $517-billion global deficit."
Whatever the influence, David Hale classifies it as far-reaching.
"In the past, G-7 central banks focused primarily on their own business cycles and the American economy. In the future, they will have to take account of how fluctuations in the Chinese economy are affecting global commodity prices," Hale said.
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