Wednesday, July 26, 2006

Speaking of China...

I haven't in a while.

China may be one of the only - if not the only - countries in the world that is frantically (you could say desperately) trying to slow its economy down. Now, you can't really blame Beijing for being a bit nervous. Not every country's economic growth is roughly equal to adding all of Ireland to your GDP in a year, but that's roughly what China did in the last year, adding approximately US$200 billion to the mainland economy. (Actually, that's a guess on my part. Having a hard time finding statistics on China that agree.) This was China's fastest rate of growth since 1994.

And they're desperate to stop it.

I don't know if I mentioned it here or on Gristmill, but China announced a few months back that it was dropping plans to draw up a "green" accounting of national growth. They didn't say why, exactly, but it's not hard to guess: If China used any kind of rigorous statistics, any honest green GDP measurement would show negative growth, when you take environmental damage and social disruptions in to account.

A let's not kid ourselves, Wen Jiabao isn't worried about the environment, not when he worries that the social fabric of China is coming apart. I can't read his language, much less his mind, but if I were Wen I'd be scared to death of inflation. It was a period of (relatively) slow growth and inflation that coincided with the Tiananmen uprising, and that was when Zhao Ziyang ( Wen's old boss) did something incredibly brave and incredibly foolish, and found himself under house arrest until he died last year.

The problem is what to do. The main ways to fight inflation are to slow the economy - which they're trying to do, and failing. Alternately, they could try and redistribute some of the incredible sums being made in the economy downward, but that might just exacerbate the inflation. Meanwhile, no matter how fast or slow the economy grows, the unrest grows. China went from having 58,000 protests in 2003 to almost 90,000 last year.

It's weird to think of one of the planet's biggest economies (either #2 or #4, depending on how you measure) being as weak as it is, but the fact is the Beijing is not nearly as powerful a government - in some areas - as we think it is. If China had the kind of regulatory regime that, say, the United States has, it would be in a much better shape to slow the economy, control inflation, and maybe ease some of those protests.

And while the environment probably isn't at the top of either Hu's or Wen's minds, they aren't exactly ignorant of it, either. Adding one Ireland every year comes with its costs, especially in a country where 75% of the electricity is generated by coal, and the average energy efficiency makes even Canada and the US look good. The human cost of that kind of air pollution is pretty steep.

I don't quite know where to go with this post from here, but the immensity of the challenges that China faces in the future - and the challenges that China poses for us all - continue to boggle my mind.


Anonymous said...

Hi again John. One interesting point about China's inefficiency. It is unbelievably inefficient compared to the U.S. when BTU/$ are measured according to actual international exchange rates. But these are distorted since they only reflect traded goods. Another measure of GDP is PPP (Purchasing Power Parity) which measure economic well being according to actual cost of living - considering locally produced goods as well as imported goods.

If you look at the environmental overview within this state department analysis you will see that on a PPP basis China spends fewer BTUs per $ of GDP than the United States!
( tiny URL versionof the link: )

Of course this is not completely accurate either. It does not take quality into consideration in comparing the cost of local goods. The real answer probably lies in between or in an adjusted PPP figure. Probably China does use energy less efficiently than the U.S., but not as much less as market exchange rates suggest. So China is inefficient, probably even more inefficient than the U.S. - but not unbelievably inefficient.

Ronald Brak said...

So why would China be less efficent in energy use than the U.S. when the Chinese have to devote so many more hours of labour to get a barrel of oil or ton of coal compared to Americans?

I think the answer is likely to be that China's energy infrastructure hasn't been able to keep pace with their economic expansion, forcing many factories to rely on less efficent diesel generators. Also there are still rural areas without access to grid power, resulting in the use of kerosene etc. for lighting.