East side story: China's appetite boosts economies
China's appetite lifts US, world economies
The price of steel is rising. The same is true for nickel, copper, zinc, and soybeans. For all five commodities, the reason is the same: China is buying more.
Like a teenager in the middle of a growth spurt, China is wolfing down raw materials and machinery at a furious pace. The Chinese appetite for goods isn't just lifting prices. It is lifting the entire world economy.
In this country, China is viewed principally as an economic competitor that steals American manufacturing jobs with its undervalued currency. There is an element of truth to this critique, but as a way of looking at China it is much too narrow. The China growth story has a number of attractive elements, and in the long run, they may prove to be the more important chapters of the story.
China has been growing fast for years. This year that growth has kicked into a higher gear. "There is definitely a boom underway," said Peter Harrison, a money manager with J.P. Morgan Fleming in London. Pick a category and the numbers are breathtaking. In 2003, industrial investment is rising at a 55 percent annual pace; loans at 25 percent; electricity use at 18 percent. In the first six months of the year car sales were up 82 percent. The growth has triggered huge demand for practically everything and much of that demand is being satisfied with imports. In the first nine months of the year imports were up 40 percent, outpacing the 32 percent gain in exports. According to Nicholas Lardy, a China specialist at the Institute for International Economics, China this year will be the world's third-largest importer, topped only by the United States and Germany. Unlike its neighbor Japan, which sells goods abroad but won't reciprocate, China runs a relatively open economy.
In a slow-growing world, China's imports have provided a welcome boost to countries from Ghana to Chile to Russia. American companies have benefited, too. In June, Otis Elevators won a contract to install 111 escalators and elevators in a massive new Chinese shopping mall. For a relatively small economy -- China represents about 5 percent of the world economy versus 30 percent for the United States -- China is having an oversized impact.
"China is a huge positive for the world," said Stephen Roach, chief economist at Morgan Stanley. "Washington's bashing of China completely misses that point."
Which is not to say the China story does not have a dark side. The Chinese yuan is undervalued and this distortion gives China an unfair advantage when it sells products in this country because it makes Chinese goods cheap when purchased in dollars. Treasury Secretary John Snow has been lobbying the Chinese to make an adjustment, and he will make his case again at a meeting of finance ministers this weekend. Some China-watchers worry that the current economic boom is unsustainable and, if left unchecked, it could turn into a bust in 2004. What China giveth, China could taketh away.
So what's the right way to look at China? Is it a good guy or a bad guy?
Here's a little perspective. Not that long ago you couldn't see the word "China" without the word "Red" in front of it. The fear then was not that China would steal our jobs but that it would threaten our security or the security of its neighbors in Asia. That could still happen, but the chances seem increasingly remote. In fits and starts, China is becoming a part of the world community. It is helping the US deal with North Korea. It is a member of the World Trade Organization. There is plenty of room for improvement in China, especially when it comes to human rights, but the indicators are pointing in the right direction.
Consider this: Last week Reebok signed a deal with Yao Ming, in the hope that the Chinese-born basketball star will help sell sneakers to the 280 million Chinese who watch basketball on television. Over the long haul, you have to think that a China that is interested in playing basketball, buying sneakers, trading with other countries, and getting rich has to be a plus for both the world economy and our economy.
Charles Stein is a Globe columnist. He can be reached at stein@globe .com.
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