Thursday December 22, 2005

Shockwaves from China

COMMENT
By WONG SULONG

You must have read yesterday that the Chinese government, using new statistical methodology and data from the latest economic census, revised the nation’s gross domestic product upwards by nearly 17%.

This is equivalent to an extra US$284bil (RM1.07tril) or the size of the economy of Indonesia or Turkey.

Officially, China’s economy has overtaken that of Italy and is now the sixth largest in the world after that of the United States – the world’s largest economy by far – Japan, Germany, Britain and France.

But most Western economists believe that due to an undervalued currency and China’s conservative calculations, the Chinese economy is already larger than that of France and Britain.

But it is pointless arguing: at current growth rates, China’s economy will overtake that of France and Britain by the end of next year.

Abdullah: ‘Malaysia welcomes the Chinese, be they tourists or investors’

More important: if the respective growth rates in recent years are sustained, China will overtake Japan as the second largest economy in six to seven years, and by 2040 – a generation from now – it would rival that of the US as the world’s largest economy.

The new data showing an enlarged economy does not make the Chinese economy – in reality – any larger than it already is or its citizens more prosperous than they already are.

But it gives us a better understanding of the economic strength of this emerging juggernaut and how this awakened dragon is sending shockwaves across the world.

Twenty years ago, the favourite debate among economists and political scientists was whether the Russian model was superior to the Chinese model.

This debate is no longer relevant. Russia has lost out. Moscow went for political liberalisation before economic reforms.

The experiment failed miserably.

Beijing held on to tight political controls but opened up its economy.

The success is for all to see if one visits Beijing, Shanghai or even cities in the Chinese interior.

Now the debate has turned to India and China.

Can India’s democracy and knowledge industry rival the Chinese marvel?

We will have to wait for another 20 years.

But I guess both models will succeed and China and India will be world economic superpowers by 2050.

For now, Malaysia and the rest of the world must learn to adjust to the Chinese juggernaut or be marginalised.

Prime Minister Datuk Seri Abdullah Ahmad Badawi is right when he says Malaysia welcomes the Chinese be they tourists or investors.

Abdullah has set the target of US$50bil (RM189bil) for bilateral trade by 2010 compared with anestimated US$30bil (RM113bil) for 2005.

Many Malaysian companies are investing in China; the Kuok and Lion groups being the most prominent.

The total Malaysian investment in China runs into billions of ringgit, and is growing rapidly.

The Chinese market, needless to say, is huge.

The world’s car manufacturers are in.

The big supermarkets – Walmart and Carrefour – are fighting to carve out the Chinese market, as are the fast food chains, KFC and McDonalds.

China is expected to be the world’s biggest market for luxury goods by 2010, overtaking the US.

De Beers is planning a massive marketing strategy to change the Chinese love for jade and pearls to diamonds.

There used to be a saying among business: If your company is not in the US, you are not a global company. Now, if you don’t have a business in China, or planning to start one soon, you are not a global business.

But China is not only a huge, fast-growing market.

It is a small, but fast-growing global investor as well.

Chinese investment in Malaysia is relatively small, but expect it to grow substantially in a decade or so if conditions are right.

Chinese investments globally at the moment are aimed at securing resources needed for its industrialisation or strategic markets.

Hence, the Chinese own iron ore mines in Australia, undertake oil exploration in Kazakhstan, Iran and Africa, and has bought over the personal computer division of IBM.

China’s growth has also changed the global landscape in ways that most people may not realise.

For example, I am told, the city of Perth is enjoying an unprecedented boom with multi-million dollar homes and apartments dotting the Swan River.

The reason: Western Australia is one of the main beneficiaries of the commodity boom, driven by China’s enormous appetite for commodities.

This year, Australian iron ore exporters secured a near 90% price increase for their sales to China.

But Mexican manufacturers are fighting a losing battle in the US market as better quality and lower cost Chinese goods are flooding the US and European markets.

On the other hand, Brazil is celebrating. It exports soya bean, beef, iron ore, copper and timber and prices of all these commodities have surged in recent years.

Such is the China effect.