Can China Sustain its Course of Economic Development?

11.08.15
Reuters
World News /08 Nov 2015
11.08.15

Can China Sustain its Course of Economic Development?

Since the beginning of the economic reforms of Deng, China has been growing at an impressive nine percent annually. The challenge today is whether China can press forward with its present economic growth rate. In an interview in 2010, former President George W. Bush revealed the following: “I asked Hu Jintao ‘what keeps you up at night?’ Hu Jintao responded: ‘twenty-five million new jobs a year.’” The Chinese government cannot afford not to maintain its present economic growth. The country has 1.3 billion people, and that number is projected to rise to 1.4 billion people over the next two decades. In addition to the need to accommodate millions of people in its urban centers, China must also create millions of jobs for the people who graduate from college each year. These millions of students need employment, and the failure of the Communist government to provide them with jobs will translate into economic malaise and political turmoil in China. To maintain economic growth and improve the living conditions of its citizens, China must embark on a “global energy search” and is securing energy contracts throughout the world.

Energy needs are not the only problem China is facing. According to the New York Times, China is producing college students in numbers that the world has never seen before. While this number of college graduates is “potentially enhancing China’s future as a global industrial power, an increasingly educated population poses daunting challenges for its leaders. With the Chinese economy downshifting in the past year to a slower growth rate, the country faces a glut of college graduates with high expectations and limited opportunities.” These are formidable challenges that lie ahead for the Communist Party and its new leader, Xi Jinping.

As in the eighteenth century, China is now faced with millions of people who need employment, who desire to join the ranks of the middle class.

To create employment and accommodate the high numbers of Chinese moving into urban centers, China needs resources such as oil, natural gas, uranium, iron and other rare resources. Failure to provide jobs and to meet the needs of its people will result in social unrest and political instability. Chinese leaders are wary of the reoccurrence of uprisings like the Taiping Rebellion and the Boxer Rebellion, both of which were triggered by ordinary people who felt alienated from their government.

China’s domestic oil production is not enough for it to sustain its economic growth. It must reach out to energy rich countries and import billions of barrels of oil.

China is territorially the third largest country in the world. Nonetheless it does not have the resources to maintain its economic growth. In order to satisfy its energy needs, it must reach out and invest in other countries that are endowed with such resources. China has already invested in many countries in Africa, Latin America, Central Asia and other oil- and resource-rich regions. According to The Diplomat magazine, China has been aggressively investing in Sudan’s oil reserves, “obtain[ing] 40 percent of [the country’s] oil production.” In the same vein, The Global Post reports that to strengthen its presence in Africa, and to expand its soft power capabilities, China built a $200 million building in Ethiopia, where the new African Union’s headquarters will be located.

David Shinn, who worked as the U.S. ambassador to Ethiopia and Burkina Faso, maintains: “in the past several years, China was the single largest bilateral source of annual foreign direct investment (FDI) in Africa’s 54 countries.” Shinn notes that more than 2,000 Chinese companies have invested in Africa. These state-owned companies have gone into energy, mining, construction, and manufacturing. Chinese oil companies are also prevalent throughout the continent.

The Chinese National Petroleum Corporation has invested up to $6 billion in the oil sector of Sudan, a country that is embroiled in a bloody civil war. “The China Power Investment Corporation plans to invest $6 billion in Guinea’s bauxite and alumina projects. Privately owned Huawei and publicly-traded ZTE have become the principal telecommunications providers in a number of African countries,” Shinn notes. The Chinese have also invested in other sectors of African countries’ industries, including aviation, agriculture and even tourism. Shinn also observes that even individual Chinese are investing in small amounts in minor businesses such as restaurants and acupuncture clinics, etc. Shinn goes on to note:

The bulk of China’s FDI has been concentrated in a relatively few countries. Between 2003 and 2007, five countries—Nigeria, South Africa, Sudan, Algeria and Zambia—accounted for more than 70 percent of China’s FDI. While these countries remain important recipients, others such as Guinea, Ghana, Democratic Republic of the Congo and Ethiopia have joined the list in recent years. In 2010, Ethiopia had, for example, 580 registered Chinese companies operating with estimated investment capital of $2.2 billion. Some of this new FDI is coming thru Chinese special economic and trade cooperation zones. China is working with African counterparts to establish seven of them: two each in Zambia and Nigeria and one in Mauritius, Egypt and Ethiopia.

However, Chinese investments in Africa will likely decline because of the slowdown of the Chinese of economy and the growing interest of new players wishing to exploit Africa’s resources. India, Brazil, and Turkey are among the new players that are arriving on the continent, and will naturally compete for resources with China. As China is increasing its foreign investments in the African continent, oil-producing countries like Iran and Saudi Arabia have been expanding their own economic and energy ties with China.
Iran and Saudi Arabia—two of the major oil producing countries in the world—have also been expanding their economic and energy ties with China. Thierry Kellner notes that the “China-Persian Gulf link will be a fundamental dimension of the region’s geopolitics in the 21st century.” Kellner further states: “The international diplomatic context in the wake of 9/11 and the cooling of Saudi-American relations, along with Iran’s nuclear program and the war in Iraq, provided Riyadh and Beijing an opportunity to draw closer together. Saudi Arabia was looking to diversify its foreign relations to somewhat counterbalance the U.S. influence,” and China has provided the Saudi government with that alternative. Afghanistan, a country embroiled in a civil war, is another attractive place that has drawn Chinese companies’ attention. The very fact that the Chinese would be interested in Afghanistan is of significance, considering that the country is not a safe place to invest. However, in spite of its instability, China has been expanding its efforts in Afghanistan. This demonstrates China’s desperation for energy and resources to meet the needs of its people.

William Maley states, “China has a range of economic interests in Afghanistan. Following the liberalization of the Chinese economy after the reforms of Deng Xiaoping, Chinese investment surged in a wide range of projects in different parts of the world. Post-2001 Afghanistan has now become a beneficiary of this development.”

Because of Afghanistan’s rich resources, the Chinese will continue to expand their economic efforts into that country. 
The Metallurgical Corporation of China has been involved in the extraction of the Ainak copper mine in Logar, and in 2011 the China Petroleum Company “secured an exploration contract for the Amu Darya basin,” Maley notes. Security threats by the extremists in the region and activities of radical elements in the western Autonomous Region of Xinjiang have forced China to pay closer attention to the development of events in Afghanistan. Besides economic and security interests, China also has “geostrategic interests” to its west. Through the establishment of the Shanghai Cooperation Organization, an entity initially founded by China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan, the Chinese government has been trying to assert a more active role in Central Asia, a region that was under the domination of the Soviet Union for several decades.

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