Hamish McRae: Asia's latest growth spurt highlights the gulf between the 'old' world and the 'new'
Economic Life: If you want to get a feel for the changing relationship between the two worlds, look at the photos from President Hu Jintao's visit to the US
Friday 21 January 2011
Too little growth in the West and too much in the East. There is an extraordinary contrast, is there not, between the fragility of the recovery in the US, UK and Europe and the spiralling growth in much of Asia? Both are a source of constant concern in the West.
The tension between the slow-growing "old" world and the fast-growing "new" one has heightened further in the past few days. We have just had confirmation that the Chinese economy grew by 10.3 per cent last year, while Indian growth seems likely to be around 8.5 per cent. Unsurprisingly, such growth is putting great strain on energy, commodity and food prices, with the result that these markets are showing the strain much earlier in the economic cycle than would have been the case in the past. You can have a debate about how much the West is itself to blame by its easy money policy: print all that money and it has to go somewhere. You can have a debate about the sustainability of Chinese growth. But there is no debate at all about the contrast between the two worlds over the past three years. It was not a world recession; it was a North Atlantic recession – North America and Europe.
Actually, in the past couple of days a rather different concern has arisen. It is not so much about Chinese demand for commodities but rather that there will be some kind of interruption to growth there, which will depress global demand. China has to slow down and, as a result, the world economy will slow down with it. My own view is that some sort of pause is very likely but this will not change the big picture – the big power shift that is taking place.
If you want to catch a feeling for the change in the relationship between the two worlds, look at the photos from President Hu Jintao's visit to the US. The Chinese delegation is strutting about confidently, sidestepping all criticism and asserting the country's right to make its own political decisions. Their American hosts, including President Barack Obama himself, appear curiously ill at ease, aware of the extent to which the country is in hock to China, aware that the baton of global economic leadership is set to change hands within the next decade or two, but anxious to assert that for the time being, at least, the US remains No 1.
And for the time being it is. Just for reference, I have shown the Goldman Sachs predictions for the size of the top 10 economies in 2020 and, as you can see, on those numbers China is still second for another decade at least. But I have also been looking at an interview that Reuters did on Wednesday with Jeffrey Immelt, chief executive of General Electric; in it he said he wanted the US and China to open their borders for truly free trade between the world's top two economies, rather than hiding behind protectionist walls.
That suits GE, which has just this week signed deals worth $2bn (£1.26bn) to supply electric turbines, railway locomotives and aircraft components to Chinese companies. It is in a strong position. But it also needs China, and has agreed to work with Chinese companies on, among other things, high-speed rail in the United States. High-speed rail?
I was sent a map by a Chinese reader, who noted that come October this would become a hot topic. For that is when the new high-speed rail line between Beijing and Shanghai is scheduled to open. Construction is complete and the line is now undergoing testing.
When it does open, with trains running at more than 220 miles an hour – quite a bit faster than Eurostar – we will have to ask ourselves some tough questions. By 2015, China will have every line on that map complete and will have more high-speed rail lines than the rest of the world put together. Contrast this with the struggle we have here to build a high-speed line between London and Birmingham. I was, as it happens, on part of the Chinese line that has already been completed, and it was astounding. There is now no technical advantage in Europe in this technology, though that was where the technology was mostly developed in the first place. And China can get things built at a speed we can barely comprehend.
But there is another distinction between China and Europe. The distances in China are such that high-speed rail really makes a difference. It does not matter that much if people will be able to get from London to Birmingham 25 minutes sooner than they can now. Eurostar is convenient but it has not changed the relationship between London and Paris. But a fast rail network all China will have a unifying effect on the country, bringing the wealth of the coastal crescent into the heartland. Socially that is tremendously important, for the wealth has to be spread better. But it also improves the competitiveness of the nation, boosts employment in the still under-developed centre and, as a result, should broaden the growth of China's new middle class.
That, in the end, is the key to sustainability. As the middle class grows, the proportion of people who feel they have a stake in the new prosperity increases. This new middle class realises that growth has to be environmentally sustainable. As wealth grows, resources are developed to deal with environmental pressures.
I have been looking at some data for air quality in Chinese cities and it is gradually improving, particularly in Shanghai. And gradually, too, growth will become less energy-intensive. In the UK, for example, economic growth does not require greater energy input. Energy efficiency is rising as fast as economic activity.
But that stage has not yet been reached in China, still less in India. So, for another generation at least, the demands on the planet's resources will climb. BP has just produced some long-range projections for energy demand, reported in these pages yesterday. These suggest that demand for oil in particular will continue to rise, and it is hard to quarrel with that for oil is a hugely convenient source of primary energy. The issue is more one of supply than demand.
So the question "will growth slow in Asia?" seems to me to be very much a short-term matter, a blip for the coming months perhaps, but not something that changes the longer-term picture. If that is right, China will continue to scoop up resources from all over the world for a generation yet.
A Chinese economist recently put it to me like this: "China is like a hungry teenager – teenagers need a lot of food when they are growing up, but when they are adults they don't need so much."
Meanwhile, it is safe to assume that even if there is some sort of pause in growth in China it will not be for long. Demand on global commodities will resume and it is in the interests of the rest of us to hold down our own demands on the planet.
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