Wednesday, July 11, 2007

China and the Whole Hog

Sat in on a discussion at The Nixon Center on "China and the Global Resource Balance" featuring Ambassador Chas Freemen. The title for this blog posting comes from a comment at the beginning that China possesses half of the world's pig supply and is generally the leading consumer of most commodities.

Some points that either came up during the discussion or crossed my mind--

--China's industrial output is set to grow by 17 percent in 2007 alone, so there is an almost insatiable need for resources

--Are we truly isolating "rogue states"? Something Drew Thompson, director of China Studies at the Center, noted, that logs harvested in Burma (Myanmar) are bought by China, yes--and then turned into furniture sold in IKEAs all over the world. So in the end result we Western consumers are not isolating these states at all. It also reminded me of a remark Fareed Zakaria made at a Gramercy Round last year, about China in essence picking up the "scraps" of the commodities deals Western countries didn't want. So is one role China plays in the global economy being the processor of materials for the West that the West doesn't want to sully its morals by acquiring directly?

--China is spending 9 percent of its GDP to modernize its infrastructure; the United States is spending less than 1 percent on maintenance and modernization of its infrastructure.

--China's economy is increasingly being powered by domestic demand rather than by exports. This is also true increasingly for Russia. For me, it raises questions then about the loss of leverage the United States has. And China's demands for resources all over the world means that the U.S.--even with European backing--cannot impose meaningful sanctions on any country unless China (and India and Russia) also agree to take part and to enforce.

--How much more profitable recycling is set to become of all sorts of metals and minerals as new sources decline or become more expensive. And something that James Schlesinger noted in our pages last year about liquid energy, the same for other scarce commodities--the country that comes up with a workable substitute first (whether for gasoline or anything else) will have an immense economic advantage.

A few points:

- China is taking advantage of US & EU policies by picking leverage very cheaply (that goes to a certain extent for Russia as well). Moreover, sanctions policies pursued by U S& EU only diminish and eliminate their leverage over these states making future policy costs even higher.

- In regards to infrastructure in US - Manhattan is dilapidated compared to London. the quality of wrapping around snacks in US reminds one of those in Eastern Europe in 1980s.

- There is a 60 year cycle for iron and steel recycling, there are similar ones for other metals. You can get everything recycled if you make people sufficiently poor. The plastic Minute-Maid juice container is nicely used by middle class Indians.
Liked what Freeman also said in his remarks--that Africans like having options to do business with people who just want to do business--and that the US and Europe can no longer assume that they can decide the destiny of the third world.
I think that is an important observation--we expect China to take the heat for dealing with bad countries but we don't want to pay higher oil prices if we actually put Sudan or Iran under real sanctions so let them sell to China and let the bad states sell their raw materials so we can get our furniture and electronics too.
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