The Rising East
Over the past three decades, China has undergone a complete economic revolution, forever transforming the fate of the country and the course of the world’s future.
In 1978, Communist Party leader Deng Xiaoping unleashed economic reforms that liberated China from state ownership and opened the nation to a market-oriented economy, bringing a surge in foreign trade and a heightened interest from foreign investors. What followed is perhaps the single greatest welfare improvement in all of human history.
More people experienced more economic growth in a shorter period of time than has ever occurred before. In just the first 6 years of reform, China lifted as many as 170 million people out of absolute poverty. They developed a basic infrastructure to establish an industrial manufacturing base. And they are still going strong.
Efficiencies resulting from China’s economic reforms have led to a more than 10-fold increase in the country’s GDP from 1978 to today. In fact, the nation’s GDP growth rate in the 21st century has averaged approximately 10% per year and is projected to reach 11.3% by the end of 2007. With a GDP of $10.2 trillion (based on purchasing power parity, or PPP), China is the second largest economy in the world behind the United States and is poised to become the largest within the next 10 years.
China’s remarkable economic growth has been an engine for the global economy. According to World Bank data, China’s contributions to global GDP from 2003 to 2006 were as high as 13.8%--second only to the US. By the end of 2007, China’s contributions to world GDP growth could reach more than 16% (from both a market exchange rate and a PPP exchange rate), eclipsing the US to become the world’s leading contributor.
The blossoming economy has paved the way for a new cultural phenomenon to take place in China: the emergence of a middle class. Status symbols like computers, Nokia cell phones, Zara clothing, and Estee Lauder cosmetics have replaced items like watches and televisions as “must haves.” This new middle class is anxious to participate in the global community. In fact, by July 2007, over 162 million Chinese were using the internet, with approximately 100 new users joining every minute. And by the end of September 2007, China boasted an unbeatable 523 million cell phone users.
Not surprisingly, China’s rapid industrialization and unparalleled economic growth have accelerated the country’s demand for energy. Together with India, China’s already high energy use is projected to double by 2030.
In an attempt to moderate this demand growth, the Chinese government have introduced stringent efficiency targets aiming to reduce energy use per unit of GDP by 20% by 2010. In order to increase the energy supply China has focused on their most abundant natural resource: Coal. China has the world’s third largest coal reserves (1,034.5 billion tones). They have rapidly expanded their coal fired power capacity and increased their domestic coal production. However, not only is coal on its own not enough to meet China’s energy demand, public opinion is increasingly turning against the use of such a polluting fuel. This has led the government to implement an ambitious alternative energy program with goals of renewable energy making up 10% of energy consumption in 2010 and 15% in 2020. Already in 2006 China was ranked first in the world in terms of installed renewable power capacity with 135 GW providing 17% of the country’s electricity. China was also the world’s second largest investor in renewable energy in 2006 – second only to Germany and in front of the United States.
The economically explosive mix of massive capital investment, rapid industrialization and burgeoning domestic consumer economy presents a rare opportunity to invest in a nation poised to become the next economic superpower. Energy – traditional and alternative – will have to fuel this expansion, and that is why our Asia team works so closely with our Energy and Alternative Energy analysts to understand Chinese development, and to find investment opportunities.