CHINA - THE NEXT BIG STORY

I can claim to be one of the earliest China bores. There are only two types of people, those who are talking about China and those who are not.

Everyday there’s another interesting headline and story. The Economist carries more stories about China than any place except the United States. Here’s a sample of stories from the past few weeks, Chinese can now take money out of China, banks can accept more foreign investment, global newspapers like the Herald Tribune will be printed in China, first sexual harassment cases lodged, citizens now able to sue the Government in hundreds of areas, unthinkable a few years ago. Shanghai residents taking legal action to fight a sordid commercial project in the appropriately named "Beer Street". Western trade unionists excited over the prospect of China insisting that Walmart allow unions, something being negotiated with the global trade union movement. Walmart’s imports from China are so large, if Walmart was a country it would rank about 10th as an importer. Walmart, which employs a million workers in North America, won’t deal with unions although one, lonely, endangered branch in Canada is now unionised. OK, OK, it’s true China’s trade unions are hardly independent, nor are the courts but watch this space. China is now the world’s 3rd biggest exporter and should be the 4th biggest importer this year. Just 3 years ago China was being attacked because of her export success, now the same people are warning of the impact on global growth if China slows down too much. Then there’s the currency issue, China being smart, pegs the yuan to the U.S. dollar, which of course neutralises much of the benefit U.S. manufacturers hoped to gain from the dollar’s plunge. China will not float its currency until they have their banking system in order, nor should they. Read what they say about the sequence of economic and political reform quoting Russian problems or the Asian financial crisis. During the U.S. election, manufacturing outsourcing was an issue.

A bigger issue for the U.S. is that they have outsourced savings. China is a major funder to bridge the U.S. deficit. China is now the biggest recipient of direct foreign investment and is now investing massively offshore. This is the next big story. Her energy imports have gone up almost 40% in the past 12 months. China is doubling her strategic oil reserves to equal the reserves of the U.S. or Japan. Oil consumption has doubled in 10 years, she’s gone from self-sufficiency to being the world’s 2nd largest importer of energy. Now it gets very interesting. The Peoples Daily has stated that offshore oil reserves amounted to about 28 billion tones, experts contest this figure, but even if it’s 50% wrong it would equate to over 100 years of supply at the present rate of energy imports. Now where are these offshore reserves? Recall the recent issue of a Chinese submarine in Japanese waters? This apparently happened close to the disputed Chunxiao gas field in the East China Sea. Petro China has applied for official licenses to explore in the disputed areas of the South China seas. China says she is committed to diplomatic resolution of these competing claims.

China is literally investing everywhere there is energy, the Middle East, Bangladesh, Canada, Indonesia, Kazakhstan, Malaysia, Mexico, Mongolia, Gabon, Pakistan, Papua-New Guinea, Russia, Iran, Sudan, Thailand, Australia, and the U.S. Pipelines from central Asia are being built - a new silk road. Siberian oil is planned to pour south. At the APEC meeting in Chile, President Hu announced a Brazilian energy deal worth almost $11.5 billion, already they invest heavily in Latin America, in Venezuela, Columbia, Ecuador and Peru, and another multi-billion dollar deal is in the pipeline with the Argentine. China, like others, is still heavily dependent on Middle East oil. China now has a stake in Middle East stability which changes everything. Will there be big power rivalry, competition, confrontation or co-operation? The invasion of Iraq meant China lost important supplies. Globalisation and economic integration now means our needs are similar. We all need predictability and stability, and being each other’s customers and suppliers should force-up more co-operative global economic and political policies. All this investment and supply needs will impact on China’s foreign policy. Witness the politics of the Sudan at the U.N., and talk of a serious blue water navy to protect supplies.

China’s political hand will grow to meet her economic strength in places as diverse as the Sudan, Iran, Russia, Columbia, and in her neighbourhood. This will be one of the great challenges of this new, very new, century.