March 30, 2005

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If China was America and other absurdities

Richard points to Lisa who points to an Asia Times article titled Too Much for Mother Earth. The message is simple: if China emulates America's current consumption patterns it could result in "an earth sucked dry", according to Richard. Lisa wants "a Manhattan Project to rid ourselves of fossil fuel depedency" (does she appreciate the fully irony of that statement?). Being a good blogger I go to the original article and sure enough by paragraph two we come across our favourite alarmist: Lester Brown.

It's time for a good ol' fashioned fisking.

Too much for Mother Earth By Jim Lobe

WASHINGTON - Even if per capita income in China grows at only 8% per year - lower than the red-hot pace of 9.5% at which it has grown since 1978 - it will still overtake the current per capita US income in just over 25 years, according to the latest analysis by the Earth Policy Institute (EPI).

Wrong. Even China itself believes it will make developed economy status by 2080 at best. It is projected to join the top 10 by 2100. So in 100 years it still won't be the biggest. China's GDP per person is around US$1,000. America's is around US$38,000. Even with China's stunning growth rates, it is far more than 25 years before China catches up to America. If you want some basic maths homework, try working out how many years China has to outgrow the US by 5% to catch up (I make it 74 years).
And if those increased incomes translate into the kind of lifestyle currently enjoyed by most US citizens, Chinese demands will overwhelm what the planet can provide, according to the analysis, "Learning from China: Why the Western Economic Model Will Not Work for the World". While geopoliticians worry whether China will integrate itself into the current Western-dominated international system, Lester Brown, EPI's founder, is far more worried about the impact of a wealthy China on the Earth's diminishing resource base.
We've already dealt with Lester's work.
"If it does not work for China," he notes, "it will not work for India, which has an economy growing at 7% per year and a population projected to surpass China's by 2030." China's demands on basic raw materials to feed its galloping economy have become increasingly clear in just the past few months as successive trade delegations, including one headed by President Hu Jintao himself, have made their way to Latin America to sign long-term supply contracts for commodities from agriculture to mining. On a 12-day, four-country trip in November, Hu announced more than US$30 billion in new Chinese investments in Latin America in basic industries and infrastructure designed to facilitate exports of raw materials from the region across the Pacific over the next generation.
India is even behind China in per capita GDP.
China's economic boom is the biggest single factor in the steady rise of commodity prices worldwide over the past years, a factor that - coupled with its investments and shrewd diplomacy - is buying it considerable goodwill in much of the developing world, but especially in South and Southeast Asia, as well as Latin America. A survey of 22 countries commissioned by the British Broadcasting Corp (BBC) and released recently found that China is now viewed as playing a significantly more positive role in the world than either the US or Russia and that majorities in 17 of the countries surveyed are particularly positive about China's growing economic clout. The poll, of nearly 23,000 people, was conducted by GlobeScan and the University of Maryland's Program on International Policy Attitudes in late 2004.
Which shows not much at all. China is making a massive the margin. In economics the marginal (or extra) demand is what pushes prices up, even though in aggregate that marginal player is only buying a small amount compared to others. That is China's impact - it is increasing demand for resources. But there is a mechanism for dealing with this extra demand. It's called the price mechanism. More demand = higher prices until demand equals supply. It's called equilibrium. If there's extra demand the price keeps going up. Then suppliers realise the price is going up and supply more (or explore more to find more to supply). At the same time the higher price reduces demand. Prices are powerful things - they tell you a lot.
But Brown, a founder and former director of the Worldwatch Institute who has long warned about limits to the Earth's ability to sustain wealthy lifestyles - at least as they exist in the United States - now argues that, to the extent China's growth is aimed at replicating such lifestyles, its efforts will ultimately prove futile. Chinese consumption of each of the "five basic commodities - grain, meat, coal, oil and steel - has already overtaken that of the US in all but oil", he writes. "Now the question is, what if consumption per person of these resources in China one day reaches the current US level?"
Lester's been predicting the end of resources for 30 years. He's been wrong so far. He will be wrong again. Technology means we get better at finding the stuff, better at supplementing and replacing the stuff, better at using it better. Thomas Malthus worried about this stuff too. Yet you're reading this with a fully belly, consuming plenty of resources and enjoying a good life. Don't feel guilty about it. Enjoy it. Mankind are pretty smart.
China's current per capita income is estimated at about $5,300 a year, only about 14% of US per capita annual income of about $38,000. If its economy's annual growth rate slows to 8% per year, China would reach the current US income by 2031; if it grows at a mere 6% a year, it would reach current US levels by 2040.
These numbers are based on Purchasing Power Parity, an economic theory that adjusts GDP figures for relative prices between countries. In other words US$1 buys you more in China than it does in America. The exact factor for PPP is difficult to calculate. It is also not static. If China grows quickly its PPP relative to America will decline, especially if its current bout of inflation continues. For PPP what matters more is what the real (ie post inflation) growth rates are. On that basis the growth gap between America and China is smaller than between the nominal rates i.e. it will take longer to catch up than the article suggests. There's an interesting look at some regional Chinese PPP which finds even Shanghai on PPP basis is at best US$12,000, or less than 1/3 of America. Shanghai represents 1.5% of China and is its richest area by far. For further proof, go to any city or rural area in China and walk around. Is that where America was even 50 years ago? 100? OK then.
Assuming the 8% growth rate and that Chinese consumption habits will be similar to those of the US today, per capita grain consumption would climb from 291 kilograms today to 935kg for a US-style diet, according to Brown. That would bring total Chinese grain consumption in 2031 to 1.352 billion tonnes from only 382 million tonnes in 2004 - equal to two-thirds of the entire 2004 world grain harvest.

"Given the limited potential for further raising the productivity of the world's existing cropland, producing an additional 1 billion tonnes of grain for consumption in China would require converting a large part of Brazil's remaining rainforests to grain production," according to Brown, who notes that if Chinese per capita meat consumption alone were to rise to today's US levels, about 80% of the world's current meat production would be consumed by Chinese.

Why is there only limited potential for further raising agricultural productivity? Has everyone stopped researching improvements? Even if they have, all of China's and India's farmers could use modern techniques and see massive jumps in productivity. The technology is there. As it gets cheaper it will spread ore widely and so will the benefits.
Even more daunting are similar estimates for energy production. If by 2031 the Chinese use oil at the same rate as the US does today, it would need 99 million barrels of oil a day, or 20 million barrels per day more than the entire world currently produces. Similarly, if China's coal burning were to reach current US levels of two tonnes per person per year, the country would use nearly 3 billion tonnes annually by 2031. Current annual global production stands at 2.5 billion tonnes. As fossil fuels, more use of oil and natural gas will also mean unprecedented amounts of greenhouse gases - blamed by scientists on climate change and global warming - released into the atmosphere.
The effects of global warming are in dispute. Nevertheless China is also using hydro-electric power (Three Gorges Dam being the largest example) and nuclear power. The incentives to use other fuel replacements are rising with the oil price. All of these numbers are based on the same fallacy: multiply China's population by America's current stats. Ask a Chinese farmer if he thinks he'll have the standard of living of a rural American in 30 years. Then wait for him to stop laughing.
If steel production per person in China were to climb to US levels, it would mean that China's aggregate steel use would double by 2031 to a level equal to the current consumption of the entire Western world. If China were to reach current levels of automobile ownership in the US (three cars for every four people), it alone would have a fleet of 1.1 billion cars by 2031, compared with the current global fleet of nearly 800 million. "The paving of land for roads, highways, and parking lots for such a fleet would approach the area now planted for rice in China," according to Brown.

Similarly, if China were to ape current US consumption of paper products, which are reliant on forests and recycled paper today, it would need nearly twice the amount of paper produced worldwide last year to satisfy its needs just for 2031.

Has your farmer stopped laughing yet?
"The point of this exercise of projections," writes Brown, "is not to blame China for consuming so much, but rather to learn what happens when a large segment of humanity moves quickly up the global economic ladder ... Plan A, business as usual, is no longer a viable option. We need to turn quickly to Plan B before the geopolitics of oil, grain and raw-material scarcity lead to economic instability, political conflict, and disruption of the social order on which economic progress depends."
Actually, Lester, many have already rapidly moved up the global economic ladder. The Western World has seen 100 years or more of incredible growth in living standards. In fact the West is now rich enough to deal with and address environmental problems. In the meantime don't patronise those that want a similar standard. This racist stance of "it's good enough for me but if they have it the world is doomed" is exactly what's wrong with the green movement in general. It's based on the fallacy that global supply of resource is fixed and declining. History and technology both argue otherwise.

Did you learn something? I did. Lester Brown is a potential source of hot air, a perfect replacement for fossil fuels. Most of us have been lulled into this sense of general panic over the environment and rapid growth in the developing world. But it doesn't stack up. There's plenty to go around. Indeed China and other developing nations' demand will drive increases in supply to match.

Don't panic. Instead enjoy watching the rest of humanity catch up to your standard of living. And next time you see the name Lester Brown, panic.

posted by Simon on 03.30.05 at 06:00 PM in the China economy category.


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I enjoyed your fisking. But you seem to have (hopefully not willfully) misread one of the original article's assertions. That is, the article refers to China catching up to *current* US GDP per capita in 25 years NOT the future presumably much larger US GDP per capita as you analyse. So the article does not deal with when China might catch up to the US (as did the CAS study you link to), but rather when Chinese might consume as much as present-day Americans.

posted by: dylan on 03.31.05 at 10:34 AM [permalink]


You're right. Regardless I still find the general premise neither scary nor credible. Indeed I don't even believe that China's per capita GDP will have caught up to current American GDP levels in 25 years. Any visit to China can demonstrate the absurdity of the idea, no matter how fast the place is growing.

posted by: Simon on 03.31.05 at 05:06 PM [permalink]

Fossil fuels - there's nothing to worry about. That's a point of view often heard.

Another view comes from the Organisation for Economic Cooperation and Development. Back in the 1970's, some wealthy nations (OECD) were so worried about the security of their energy supplies in the then oil crisis that they set up the International Energy Agency. The latest thoughts from the IEA?

Later this month they are expected to report the need for "dramatic measures, such as reducing motorway speed limits by 25 per cent, shortening the working week, imposing driving bans on certain days, providing free public transport and promoting car pooling schemes."

Perhaps the United Nations should organise "a Manhatten Project" for energy for the future.

posted by: IJ on 04.01.05 at 06:24 PM [permalink]

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