Dr. Bernardo M. Villegas

China has become increasingly dependent on the rest of the world for the huge quantities of raw materials that are required for continuous, albeit slower, growth.  It is already the world’s largest buyer of copper, the second biggest buyer of iron ore, and the third largest buyer of alumina.  It absorbs around a third of the global supply of coal, steel and cotton, and half of its cement. It is the second largest energy consumer after the U.S. with nearly 70 percent produced from burning coal.  In 2005, China used more coal than the U.S., India and Russia combined.  In 2004, it accounted for nearly 40 percent of the increase in the world demand for oil.  Although its growth has been slowing down to 5 per cent or less in  recent years and may never reach the income per head now enjoyed by the US and other OECD countries, the more than 700 million Chinese who have already attained middle-income levels will be making huge claims on the world’s supply of grain harvest such as soybean, wheat and maize.  As the other 700 million are able to go beyond just subsistence level of existence, food security will be the greatest challenge to this country that even today already has the largest GDP if measured, not at nominal figures but at Purchasing Power Parity (PPP) terms.  As of 2020, China’s GDP in PPP terms, according to IMF, was at $24.162 trillion compared to $20.807 trillion for the U.S.   To satisfy such a huge demand of the domestic market, China will need to import huge amounts of raw materials from other countries.

Another Achilles heel of the Chinese economy is the rapid ageing of the population putting a great burden on its pension system, reducing its labor force and slowing down its domestic consumption which is now increasingly its major engine of growth rather than its export sector.  In 2018, it was estimated that some 250 million people were over 60 years old, constituting some 18 percent of the total population.  In another 20 years, this could swell to close to 30 percent of the population.  In a Time Magazine article (February 7, 2019), Charlie Campbell estimated that by 2050, 330 million Chinese will be over 65.  Its population will peak at 1.44 billion in 2029 before starting to decline unstoppably.  All these have been due to the legacy of the one-child policy that was brutally enforced for several decades.  Even the decision to relax the policy in 2016 did little to defuse the demographic time bomb. After an 8 percent bump in 2016—mainly from women who were waiting for years to have a second childbirths again fell by 3.5 percent in 2017.  This trend will be exacerbated as China falls into the so-called Middle-Income Trap which will lead to its stagnating at middle-income levels, unable to make the leap to First World category. From the experiences of other countries that have developed ahead of China, the middle-income households are the most prone to voluntarily limit the number of their children.

By understanding the root causes of the anxieties of the Chinese leaders about their long-term future, the countries in Southeast Asia will know how to reduce the political tensions emanating from the aggressive behavior of their neighboring economic giant.  They can use the framework of the recently organized Regional Comprehensive Economic Partnership (RCEP) which puts together the ten members of the ASEAN Economic Community with five countries in the Asia Pacific region, i.e. Australia, New Zealand, Japan, South Korea, and China in a free trade agreement.  Signed on November 15, 2020, the RCEP is a countermeasure to the tendencies of large economies like the United States and the UK to turn inwards and adopt protectionist policies.   As an editorial in Time Magazine (February 27,2021) commented: “Southeast Asia is of enormous strategic importance to China.  It is on China’s doorstep, astride the trade routes along which oil and other raw materials are transported to China and finished goods are shipped out.  Whereas China is hemmed into its east by Japan, South Korea and Taiwan, all firm American allies, Southeast Asia is less hostile terrain, providing potential access to both the Indian and Pacific Oceans, both for commercial and military purposes.  Only by becoming the pre-eminent power in Southeast Asia can China relieve its sense of claustrophobia.”

Here, we have a clue to an important bargaining power we have over China that can soften its belligerence as regards its claims over the South China sea.  The whole of the ASEAN, especially agribusiness behemoths like Thailand, Malaysia and Vietnam, can address its food insecurity concerns mentioned above.  There are also very strategic resources like copper, nickel and other mineral products that the Philippines is exporting to China to support its continuing industrialization and infrastructure building programs.  It has been very noticeable how China has been all over the developing world in Latin America and Africa using its financial clout to have access to the raw materials that are abundant in these two continents.  China has not always been successful in maintaining friendly relations with some of these countries because of its often overbearing attitude towards them.  The ASEAN can use its abundant natural resources as an incentive for China to tone down its sometimes belligerent moves in the South China sea.  Another possible appeal that the Philippines has to China is our young and growing population which can help this rapidly ageing country to mitigate the problem of shortages in human resources, especially in such sectors as health, care-giving, and educational services. 

On the demand side of the equation, China cannot ignore the ASEAN Economic Community as a very attractive market for its manufactured goods, especially considering its Made in China 2025 objective.  As the editorial in The Economist rightly pointed out:  “…(Southeast Asia) is an ever more important part of the world in its own right.  It is home to 700 million people—more than the European Union, Latin America, or the Middle East.  Its economy, were it a single country, would be the fourth-biggest in the world after adjusting for the cost of living, behind only China itself, America and India.  And it is growing fast..  The economies of Indonesia and Malaysia have been expanding by 5-6 percent for a decade; those of the Philippines and Vietnam by 6 to 7 percent.  (To be continued)

For comments, my email address is bernardo.villegas@uap.asia.


Source: Manila Bulletin (https://mb.com.ph/2021/04/20/dealing-with-an-economic-giant-part-2/?utm_source=rss&utm_medium=rss&utm_campaign=dealing-with-an-economic-giant-part-2)