China is an interesting country; the Chinese civilization has endured the test of time, and they have called “China” home for thousands of years. In recent times, they have gotten some bad press. A few decades ago, the bad press was about the atrocities and mass starvation which killed tens of millions during the peak of the communist years; in recent years, it’s been about the heavy environmental impact of China’s industry, as well as continued repression and controls. However, the country has truly come a long way from the communist black hole into which it had descended. For those who haven’t seen the incredible changes that China has been undergoing in the past couple of decades, it might be a little hard to believe. This eastern country is rising up incredibly fast, and is nothing like the China of even 50 years ago.
Check out photos from Shanghai 20 years ago, and today:
China’s rising prosperity
I find such a level of change over such a short period of time to be nothing short of incredible. On this side of the globe, we’ve had booms to be sure, but nothing like that. This is just one city among dozens of Chinese metropolises that have similarly boomed.
China’s economy has surpassed Japan as the world’s second largest, and its GDP is currently 4.33 trillion. If the economy keeps growing at 10%, it will only take about 13 years for them to catch up to the current US GDP of 14.59 trillion. From there they have a much further ways to go to hit current US GDP per capita, of course, but if the relative purchasing powers of the two currencies adjusts significantly, it might not be that long of a way. If they hit even 1/2 of US GDP per capita, I think we could consider them a pretty wealthy country by that point.
China’s voracious appetite for energy
Such a huge economy needs a heck of a lot of fuel to power it. China’s economy is heavily powered by fossil fuels, and one of the best ways of investing in China’s growth might be to invest in oil. The impact of China’s rising living standards on fossil fuels is going to be interesting. There is simply not enough oil on the planet to satiate a China that consumes as much as the U.S. per capita, so I think that price pressures alone are going to create a big incentive to move away from oil and toward a more diversified mix of energy sources.
As energy grows more expensive, high energy costs are going to place a tremendous pressure on the middle class and the poor as energy grows relatively more expensive. I believe that this will drive widespread use of alternatives such as solar power, and perhaps even a relaxing of restraints on nuclear power. It’s either that or we produce power like China and turn our skies black with the soot of coal.
China’s economy is not a rock of stability
There are potential stumbling blocks that could happen along the way. The Chinese government still has a heavy hand in the economy, and has dealt out plenty of distortionary stimulus. Chinese interventions in the energy markets have caused factories to shut down and have left people freezing cold in the middle of winter. China is still engaged in a mercantilist policy of effectively subsidizing Americans (and Canadians) for purchasing Chinese goods by keeping the Yuan low.
It’s still too early to say who the ultimate winner and loser of China’s exchange of cheap goods for U.S. IOUs will be, but one thing is for sure: The rising Chinese are going to demand increased purchasing power commensurate with their economic growth, and the only way that is going to happen is if the Chinese stop artificially pegging the yuan.
China, the new Christian center of the world
One of the interesting facts that I found out about South Korea when I first arrived was how many practicing Christians there were. I never imagined that an east Asian country could be predominately Christian, which South Korea is. South Korea does not have medieval-style churches like we are used to in the west; instead, one sees dozens of neon crosses on buildings around the city, which indicate the locations of different churches.
It turns out that China also has a burgeoning population of Christians. In fact, China now has more Christians than Italy! How long until China contains as many Christians as say, Europe or the U.S.? I don’t know what sort of economic impacts this would have, but I find it interesting nonetheless.
China is still an oppressive nation
Much of China’s newfound prosperity has been a result of China releasing the free market tiger and relaxing controls on the economy and on society, but China is not a free society. The communist party of China might have given up their failed ideology and economic model that resulted in the deaths and murder of tens of millions of people, but they have not given up all of their power. Abuses are still prominent, such as the suppression of Tibet, and China still has not let go of the idea of absorbing Taiwan someday.
China has liberalized its markets to some degree, but speech is still suppressed and censored, and political power still reigns supreme. The government still interferes plenty in the markets when it wants to. China is no free market utopia, and it still does not have a great deal of respect for property rights, especially the rights of the rural and urban poor (especially when they get in the way of the Olympics).
In spite of all of the less than attractive features of China, one cannot deny that they have come a long way. Today, we talk about the abuses of rural and urban poor; a few decades ago, everyone was so poor that the ones that hadn’t already been purged in China’s version of 20th-century style mass democide were starving and dying by the millions! When you look at things this way, the modernization and rising living standards of China is one of the greatest humanitarian projects of the past century.
Today, China is more free than the west in a few ways, and like much of Asia that has known hard times in the past, it has a spirit of entrepreneurialism and a “can do” attitude that used to define us in the west, before we decided that we could vote ourselves a good life via subsidies, bailouts, and tax rebates, without actually having to work for it.
- Beating The Index: China Bluntly Confirms my Oil Investment Thesis
- Business Insider: 15 Facts About China That Will Blow Your Mind
- Zero Hedge: Quantifying The Top 10 China Risks
- Frugal Zeitgeist: Do You Care Where It Comes From?
- Beating The Index: Investing In Oil: My Personal Take
So, reader, what do you think about the rise of China? How can we benefit from the growing power and prosperity of this ancient civilization? I don’t believe in “us versus them”, I believe in comparative advantage. A rising Chinese means higher energy costs, among other things, but it also means opportunities, and the chance for a richer and more balanced world.