On Friday 28 April, the People's Bank of China quietly raised its benchmark one-year lending rate by 27 basis points to 5.85 %. A few years ago, this would have, at best, attracted a spate of pontificating commentary. This time, to borrow the wording of the Financial Times, the world trembled as commodity prices and stocks dived and boardrooms were abuzz with speculations of what next.
This time last year, a stock-broker friend of mine still naively told me that he was not interested in China as his attention span was exclusively confined to Wall Street. He will not now need my gentle reminder. (Check my back number China is Everywhere, Everyday under Recent Posts in this column.) Coming on the heels of China's recent directive in its latest 11th Five Year Plan for a less heated and more balanced development, China's second interest hike in a year underscores its efforts to rein in a break-neck economy towards a more sustainable growth rate of 7%, instead of the latest 10.2%.
These couple of months, as if to underline its hungry demand for energy to fuel its burgeoning economic growth, China's leadership has been hyperactive in a flurry of high-level visits from and to a host of countries either rich in energy resources or strategic to China's energy corridor, such as Saudi Arabia, Russia, Pakistan and recently Nigeria and Kenya. (Africa accounts for about 30% of China's oil imports). This is seen to cement China's global web of much needed energy allies, regardless of colour or creed. These include Western-branded 'unsavoury' states such as Angola, Sudan, and Iran as well as now centre-left-leaning Latin American countries like Venezuela, at the very doorsteps of the United States.
It was therefore not surprising that last August's bid for Unocal in the US by China's CNOOC stalled over Capitol Hill's political sensitivities.
China's need for long-term energy security also explains the recently intensified oil rivalry with Japan in the East China Sea. According to the Institute of Energy Economics in Japan, oil consumption in China will grow from 220 mm tons in 2000 to 590 mm tons in 2020, while China's oil imports will soar to 450 mm tons, compared with 250 mm tons for Japan.
Overall, China has a relatively high-level of energy self-sufficiency, relying largely on its abundant coal deposits. A Beijing Review article in December quoted a sufficiency rate of 94%, compared with the average of 70% for OECD countries. But with China's continuing need for urbanisation and high-speed growth before its fast-approaching aging process sets in, it is evident that it will need to secure long-term oil and gas security as the requisite life-blood for its continued economic growth and survival.
But China is alive to the arithmetic of its "magic number" of 1.3 billion people. The world simply does not have enough energy for it to replicate the energy-dependent American dream. Moreover, apart from the increasing international tension over energy competition, the incessant quest for fossil fuel will only serve to exacerbate its image as a polluter both within and outside its own backyard. 16 amongst 20 of the world's most polluted cities are now in China. It is now trailing the US as the world's second largest producer of greenhouse gases.
These add to other accusations concomitant with China's current model of export-driven growth. There are allegations of 'economic cannibalism' as its peerless consumer goods competitiveness is threatening the extinction of century-old industries and jobs some countries hold dear. Fingers are pointing at its less than robust intellectual property protection, its widespread local corruption, and its perceived lack of human rights, freedoms and democracy. All in all, these negative images (highlighted in James Kynge's latest book 'China Shakes the World: The Rise of a Hungry Nation') are making doubly difficult what I call China's 'Long March for Brands' (Check my eponymous back number under Recent Posts.)
Seen in this light, China's about-turn in priorities in its latest 11th Five Year Plan makes a great deal of sense and even wisdom. Translated into detailed performance appraisal yardsticks for local party secretaries and officials are measurable targets for balanced growth, sustainability, renewable and alternative energies, energy saving and efficiency, environmental conservation, the cities' turn to 'feed the countryside', greater equity and care for the masses, corporate social responsibility, harmony and good governance.
The London firm Arup is already quietly helping China to build Dongtan, the world's first sizeable eco-city for half a million citizens on the 120-km long Chiongming Island, 15 km north of Shanghai. Petrol and diesel vehicles will be banned as people will live near their workplaces with environmentally-friendly public transport. Specially-designed buildings will have photovoltaic solar panel cells with wind-turbines outside the city area. Biomass energy production using waste products will be used. There will be devices capturing rainwater in canals and reservoirs somewhat reminiscent of the Roman aquaducts. There will be sectors dedicated to research and development, such as a centre linking western medical practices with traditional Chinese medicine. The first phase is set to be completed by 2010, the year of the World Expo in Shanghai.
There are also tell-telling signs at recent industrial investment promotion visits to London from China's manufacturing heartland. An in-situ UK investor pointed out that China has already overtaken India in global trading of carbon emission credits. Another in leather upholstery had to assure the visiting delegation that only 'clean' leather will be brought into China. The more 'polluting' processes will be handled in the UK with better environmental technologies. How times have changed.
Coming back to the 11th Five Year Plan, the state's avowed greater investment in health, education and social security and welfare would help to unleash the latent spending power evident in China's astonishingly high savings rate of some 40%, compared with the US's unenviable extreme of almost zero.
Herein lies the less conspicuous agenda of stimulating internal demand and the growth of a more pervasive consumer society. The objective is to reduce the internal and external conflicts and contradictions of excessively export-dependent growth.
Using proprietary consumer surveys in 10 tier-1 cities in China and econometric modelling, Jonathan Garner with his colleagues at Credit Suisse First Boston, projects the growth of consumerism in China by 2014 in his latest book 'The Rise of the Chinese Consumer: Theory & Evidence. Assuming that the RMB edges from the IMF-valued current 0.2 of PPP exchange level to 0.55, and continuing economic growth at 7%, there is a high probability that the USD-size of China's economy will almost quintuple to about 90% of the US economy with an expected annual incremental spend twice the level of US$ 262 billion in the US. The pendulum of global consumer growth is likely to shift towards China.
Topping the world's growth rates will be such product categories as personal computers and autos. Although the expected growth rates of other product categories such as televisions, mobile handsets, radios, fixed-line telephony and air travel are much lower, because of China's size, they are still expected to represent 36 to 50% of total additional demand in the 15 large countries surveyed (including China).
The April reports in China Today lend credence to the growing Chinese consumer story. Since 1994, over 90% of state-owned housing stock in large and medium-sized cities has already been sold into private ownership. Extremely stylish apartments, such as 4.79 metre high-ceiling split-level luxury small condos of 56 Sq m, are no longer uncommon. 'Middle-class' professionals are waxing lyrical about their China dream of personal tastes, preferences, and lifestyles.
During President Hu's recent visit to the US, there was an eye-catching media photo in one of UK's main broadsheets. President Bush was pictured forcibly tugging the visiting Chinese President's left suit sleeve to pull him to his direction as both were exiting the podium on the White House lawn. The symbolism was of course not intentional. But it is all too clear that China needs and wants to chart its own course to walking tall in the world.
Andrew K P Leung, SBS, FRSA