The Trouble with China, “The Great Squanderer”

By David L. Brown

The world’s fastest growing nation, both in terms of economic expansion and absolute population numbers, is firmly set on the path of building on the mistakes of the past. The Chicom leaders of the Middle Kingdom are determined to duplicate what was achieved in the West through the Industrial Revolution—achievements that are now being recognized as wasteful, damaging to the environment, and possibly threatening the very continuation of civilization.

This vast communist nation has become manufacturer to the world through its efficient use of a vast pool of what is virtually slave labor. In its drive for growth it has over-grazed its pasturelands and plowed too many acres of fragile soils, resulting in desertification and dust storms that regularly engulf its major cities and sometimes reach across the Pacific Ocean to taint the air of North America. It is burning coal in inefficient power plants that have created air pollution on a scale never seen before. It is despoiling its lands and ravaging its natural beauty to build miles of paved roads, thousands of skyscraper apartments, and factories to turn out not only trade goods for the West, but also automobiles, televisions, refrigerators, electric stoves, and all manner of consumer “improvements” for its upwardly mobile citizens.

Do the promises of “better times” for the Chinese people seem ominously similar to Herbert Hoover’s campaign slogan, “A chicken in every pot and a car in every garage?” Perhaps. And we all remember from our history lessons (well, at least those of us who paid attention do) what soon began during the ill-fated Hoover Presidency. (Reminder for those who did not pay attention: It was called The Great Depression.)

Now, just as the West is beginning to realize that past economic and industrial models can no longer be sustained, and to turn slowly but steadily toward environment-friendly approaches, China has become, according to an article in yesterday’s International on-line edition of Der Spiegel (read it here), “The Great Squanderer.”

China’s path in attempting to replicate in the 21st Century the Industrial Revolution of the West is particularly ill-conceived in view of the fact that the nation itself has few of the natural resources needed to support its planned growth. Funded with bucketloads of Western currencies earned by its cheap labor, China is buying up natural resources from every corner of the globe.

Examples include the vast quantities of timber being imported from Southeast Asia to support the construction of a huge and economically meaningless infrastructure for the upcoming 2008 Olympic Games in Beijing. China has already depleted its own forests, and now thousands of square kilometers of rainforest are being sacrificed to impress the world with China’s supposed greatness.

Another example is the import of ore to feed the country’s insatiable need for steel, of which the Middle Kingdom requires a huge amount to feed its industries and on-going construction projects. Since 2000, China has been responsible for 93 percent of the increase in global iron ore shipments.

Power is another requirement for a nation determined to show itself as an equal to the envied West. To that end, China is mining its coal like there is no tomorrow, and bringing a new coal-fired power plant on-line at the rate of one every week. Mighty rivers are being dammed to produce even more power, despite the resulting inundation of rich farmland and the displacement of millions of peasants. Burning the resulting electricity as if they wanted to light up the Universe, the Chinese are undermining their own future and threatening the rest of the world. As an example of how the Great Squanderer uses that electricity, take a look at this photograph of the Shanghai skyline. The entire city looks like Times Square at midnight on New Years Eve. Note that so much of the light is being wasted by being beamed into space that even the clouds in the sky are lit up almost as if it were day.

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To put this picture in perspective, Shanghai already has 4000 skyscrapers, twice as many as Manhattan, and according to the article in Der Spiegel, “Every year, millions of Chinese migrate from their villages to the large cities on the wealthy east coast. Many move into apartment blocks built from concrete and steel … and the new buildings are equipped with new refrigerators, new stoves, new air conditioning systems — all of which were, of course, produced using natural resources and which themselves consume energy.”

One of the most apparent effect of China’s entry into world resource markets is their growing thirst for oil, which comes at a difficult time for the world since petroleum is nearing its peak as so accurately predicted by H. King Hubbert, and may actually have passed it. That suggests that supplies will level off, then enter a slow decline. With the Chinese coming into the market in a big way, petroleum prices are being pushed upward at a rate that may prove to be too fast for world economies to adjust. The result could be an economic downturn or even a crash that could prove disastrous for China as well as for the rest of us.

To put all this into perspective, according to Der Spiegel, “China is responsible for only four percent of the world’s overall economic output, [but] it’s already consuming 13.6 percent of the world’s energy.” The Middle Kingdom has arrived on the scene as an enormous resource hog, and shows no sign of slowing down.

Coupled with its over-use of domestic resources, its huge and exploding population, and the specter of climate change China’s path could be described as suicidal. And like a drowning man that grasps his would-be savior, this mismanaged economic juggernaut could drag the whole world economy down with it. And to make matters worse, the Chinese do not even let the economic laws of supply work to mediate demand. Points out Der Spiegel:

China is already an important factor in what happens on the world’s resource markets. But, because China is not a free market economy, traders and market analysts can rarely rely on the pure theory of supply and demand when they write their forecasts: Domestic resource prices are regulated by government officials in Beijing.

This is reflected in the fact that Chinese consumers pay only about one-third the actual cost of the gasoline and diesel fuel they consume. The government is keeping the gas price artificially low, out of concern for state-owned businesses, farmers, taxi drivers and the People’s Liberation Army. Says Der Spiegel:

The gap between rising world market prices and China’s domestic prices is causing serious harm to China’s oil giants, and they’re having a hard time explaining their problems to foreign equity holders. [Ed. note: good!] In a measure intended to counteract these problems, the Chinese government stepped in to help Sinopec — the Chinese oil corporation whose equity shares are traded abroad — by subsidizing it to the tune of about €920 million ($1.180 billion). The domestic press called this generous subsidy a “dahongbao” — one of the large red envelopes filled with money that the Chinese receive from their relatives on New Year’s Day.

China continues to develop its energy infrastructure as if there is no tomorrow. The construction of the environmentally devastating Three Gorges Dam project on the Yangtze River has “become an international symbol of China’s megalomania,” says Der Spiegel. Still the economic planners drive ahead, with plans to build 30 new nuclear reactors in the next 14 years. Windpower is also being developed, adding to the electricity grid which continues to be operating at or near its limits. In summary, Der Spiegel’s author, Wieland Wagner writes:

But these gigantic construction projects can only satisfy part of China’s energy needs: They’ll only increase nuclear energy’s contribution to the overall electricity supply to four percent. And so the red leaders are starting to think green: Their most recent five-year plan vows to reduce energy consumption per GDP point by 20 percent.

True to the tradition of communist economic planning, this ecological goal will probably not be met. Instead, Chinese industry needs to re-invent itself. Because right now — with its gas-guzzling cars, its badly insulated houses and its poorly run factories — China is one of the world’s greatest squanderers of energy. It consumes seven times more energy than Japan for each dollar of economic output it produces.

Put in those terms, the Chicom government’s plan to reduce energy use per unit of GDP by a mere 20 percent (and that goal likely not to be achieved) seems pretty thin gruel in the face of a world facing potential environmental and economic disaster.

China is a clear and present danger to the world economy. Through exploitation of its vast pool of cheap labor, and by pandering to the willing West’s endless hunger for cheap consumer goods, this Third World country is striving to buy its way to a 20th Century First World standard of living at the very time that the planet’s natural resources are nearing depletion after more than two centuries of Western exploitation.

Yes, the West has made many serious mistakes, but that is apparent only in hindsight. The mistakes now being made in China are inexplicable and inexcusable in view of the present state of knowledge.

Worse, the Chinese are entering and manipulating the resource markets just at the time when Western economies are facing the need to transition away from the past and move toward more efficient, environmentally friendly and sustainable economic models. That creates something akin to the classic pardox of an irresistible force (China) meeting an immovable object (global resources). What will happen is anyone’s guess, but it couldn’t be anything good.

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