The Toronto Star | By Michael Smith | January 29, 2004
The Asian giant's economy will eclipse America's by 2039 no matter what, according to experts But if the two nations continue along their current paths, that day could come much sooner
BODY: China is becoming the trading partner of choice for the developing world, drawing in airplanes from Brazil, soybeans from Argentina and seafood from Malaysia, boosting economies and leading to new political alliances.
Brazilian exports to China surged 81 per cent in the first 11 months of last year to $4.23 billion (U.S.), according to Brazil's government. Thirteen Asian countries exported 44 per cent more to China through October, or $219.7 billion. Malaysia sent 16.2 per cent of its exports there in the first half, five times as much as in 2000.
China's gross domestic product grew 8.5 per cent in 2003, the fastest of the world's 10 biggest economies. The growing appetite of the world's most populous nation, with 1.29 billion people, has made China a new source of income for the developing economies of South America and Asia.
While the U.S. remains the worldwide market of choice, importing $14.9 billion from Brazil and $220 billion from Asia, excluding China, through October, Chinese consumers are now the biggest alternative for commodities and goods from Latin America and Asia.
"China's booming imports from developing countries - especially of commodities - are not only helping growth in countries from Brazil to Africa, but are already reshaping international trade relations," said Kenneth Rogoff, an economics professor at Harvard University and a former chief economist at the International Monetary Fund.
Last year, Brazilian President Luiz Inacio Lula da Silva persuaded China to join a bloc of developing nations that forced the collapse of World Trade Organization talks by demanding that the U.S. and Europe scrap farm subsidies. In October, leaders of the Asia-Pacific Economic Co-operation group refused to support U.S. President George W. Bush's call to end the Chinese yuan's peg to the dollar.
Developed countries also are sending more goods to China, the world's sixth-largest economy, with an estimated $1.334 trillion gross domestic product in 2003, according to the IMF. China bought 89 per cent more from the euro region in 2002 than in 1999, according to the Statistical Office of the European Communities.
U.S. exports to China jumped 22 per cent through October, while shipments from Japan climbed 38 per cent. In Germany, Europe's biggest economy, exporters shipped 26.9 per cent more goods to China in the first 10 months of 2003 than a year earlier.
China's ascendancy as a customer is diminishing the role of Japan in Asia and may shrink the influence of the U.S. in the global economy, said Charlene Barshefsky, the U.S. Trade Representative during the Clinton administration, in an interview.
"Because China is driving Asian regional growth, you see spillover diplomatic effects," she said. "It's a movement of leverage to China from what had been unquestionably Japan's to wield." Barshefsky is now a senior international partner in the Wilmer Cutler & Pickering law firm in Washington.
When China opposed the Bush administration's decision to invade Iraq, "we didn't see any diplomatic fallout as a result, in part because the economic relations are so important," she said.
Even as China joined with Brazil to help scuttle the WTO talks last September, U.S. Trade Representative Robert Zoellick made a point of thanking Chinese Commerce Minister Lu Fuyuan for his help in creating a "positive mood" and declared that "China was a good partner here." Zoellick declined through a spokesperson to be interviewed and the spokesperson declined to comment or to respond to written questions.
"China is importing from others and selling to us," said David Malpass, chief global economist for Bear, Stearns & Co. in New York, in an interview.
"As in any commercial relationship, they are treated well as a customer. This raises China's importance relative to that of the U.S." Consequently, he said, "the U.S. has to think carefully about this as it develops its strategy in negotiations for free trade, in the UN and so on."
Will the economic clout of the U.S. decline?
"That's going to happen no matter what," said Stephen Roach, chief economist of Morgan Stanley & Co. in New York.
"Over 1995 to 2002, the U.S. accounted for almost all of the growth" in the global economy.
China's economy will surpass that of the U.S. by 2039, according to a report last year by Goldman Sachs Group Inc. economists Dominic Wilson and Roopa Purushothaman.
At $11 trillion, U.S. annual gross domestic product is almost 10 times that of China.
China's emergence as a magnet for foreign direct investment may reduce the growth prospects for countries such as Mexico, South Korea, Singapore, Malaysia and Thailand, said Douglas Irwin, a trade historian and economics professor at Dartmouth College in Hanover, N.H.
Countries in Africa and Latin America might be too late to compete in textile markets because of China's dominance, he said.
China's appetite for food, raw materials, steel, machinery and computers is having the greatest impact among developing economies such as Brazil's. The South American country is the world's biggest exporter of iron ore, coffee, orange juice and soybeans.
For all of last year, Brazilian exports to the U.S. rose 8.8 per cent to $16.9 billion and to China, 80 per cent to $4.5 billion, according to the Brazilian trade ministry.
"The growth in China has been astonishing," Mauricio Botelho, the chief executive of Embraer SA, said in an interview in Sao Paulo, headquarters of the world's fourth-largest commercial aircraft maker.
Embraer invested $26 million in a factory in China to build its 30- to 50-seat ERJ jets, seeking to tap a market that the company expects to absorb 650 small and medium-sized aircraft over 20 years, Botelho said. He declined to forecast orders or potential revenue from China.
Brazilian companies such as Rio de Janiero-based Vale do Rio Doce, the world's largest iron ore producer, are digging mines in the Amazon, adding steel mills and factories and planting more crops to feed demand from China's huge population.
"China demands highways, water and sewage plants, new homes, everything," Fabio Barbosa, chief financial officer at Vale do Rio Doce, said in an interview from the company's Rio de Janeiro headquarters.
Demand from China helped boost Vale do Rio Doce's sales outside Brazil by 27 per cent to almost $1 billion in the third quarter. Vale plans to spend at least $1.8 billion this year to expand ports, rail networks and mines. Last month, it signed a 10-year contract to boost ore sales to Shanghai Baosteel Group, China's biggest steel maker.The Toronto Star:
