Will they miss the boat?

PUBLISHED : Monday, 27 February, 2012, 12:00am
UPDATED : Monday, 27 February, 2012, 12:00am

In the past 30 years, China has transformed the lives of almost all its citizens. Hundreds of millions of people now have higher standards of living, with better access to education, health care and housing. Levels of nutrition have risen, too.

Millions now own several apartments, cars and luxury handbags. Hundreds of millions, rising behind them, aspire to the same, or a washing machine, unpolluted air and a little less corruption. As well as unleashing a wave of manic consumption, China's rise has created a tsunami of expectation.

The momentum appears clear and unstoppable. While the pace might slow a little, within 20, 30 or 40 years, it looks as if the lifestyles of the entire population might rise to that of the developed world. Rather than a few tens of millions of Chinese people with flashy cars, their own houses and expensive Italian shoes, it will be almost all of them. China will be the biggest market in the world for everything we can imagine as well as everything we can't, and probably within a generation.

Only it won't.

China's dreams, and the expectations of more than a billion people, will never come true. The hopes of manufacturers everywhere will be dashed. Instead of fighting to meet the ever-rising demand of the Chinese, one of the biggest challenges the planet probably faces is diluting their expectations again.

At issue is not some imagined risk of war which might knock China off its path. Nor is it a failure in the abilities of the Chinese people to progress. China's growth and the dreams of millions will be brought to a halt by a lack of resources.

Most of us like to think that the world's resources are infinite or assume that we can make more as we go along. All we need is a gigantic Star Trek replicator machine. Yet that is to deny the reality of the planet, as well as the laws of chemistry and physics. We have a store of supplies. But when that store is used up, that's it. We can't recreate it, just as we can't reconstitute the coal, oil and iron ore we have already used.

Luckily, there are tonnes of raw materials left on the planet and many of them will last for centuries. But there are many others that will not. When estimates are published about the resources that remain, of zinc, indium or coal, for example, they are typically measured by current rates of consumption.

Using this yardstick, the world has hundreds of years of coal left. But add in the effects of rising demand and the picture changes quickly. With China adding a new power station every week, and much of the rest of the developing world increasing its rate of coal consumption too, the reserves that remain are being used up much faster than many of us realise.

Instead of hundreds of years of coal, we may only have three or four decades' worth before China becomes constrained by shortages and much high prices. For metals like indium, zinc and copper, the problem is even more urgent.

The story is the same with oil. Although we have only used half the world's oil, more than two-thirds of the oil producing nations are in productive decline. The last major oil discovery was almost 50 years ago, in 1964. Although we are finding more, most is in hard-to-access places, deep offshore or locked up in sands or frozen rocks. Moreover, we are finding less than we are using every day.

Critically, for much of the world's raw materials, the quality of the reserves that remain is typically poorer than the stuff we have already used. Just as we eat the low hanging fruit from a tree before getting a ladder out, humankind has used the best quality coal and the easiest-to-access oil first.

For many resources, then, we face a squeeze. Many of the world's raw materials will diminish in quality and will become more complex to extract. That means their prices will rise.

China lies at the core of these problems, partly because it has been so successful over the past 30 years. While other developing countries are increasing their demand for the world's raw materials too, their needs are increasingly dwarfed by those of the Middle Kingdom.

China, which is home to a fifth of the world's population, now consumes half the world's cement, a third of the world's steel and a quarter of its aluminium. It is the largest consumer of energy.

As its economy continues to grow, China's demand for the world's resources will also rise further, exacerbating the problem. This is likely to constrain China, but also make it angry.

It is not China's fault, after all, that many of the world's resources are being depleted. It was the United States and the West who got to them first, who took the easiest-to-get-at reserves and who wasted much of what they had.

This is likely to be a source of tension in the years to come. For now, though, few seem to care. China's growth and its raw material demands have created a commodities boom across the world. Companies from Australia to the Democratic Republic of the Congo and Canada have done very nicely, even if the impact for everyone else has been less positive.

Already, prices have gone up, with oil now five times the price it was barely a decade ago. The costs of copper, zinc, steel and many chemicals have mushroomed.This is a general theory of decline. The West is trapped in a cycle of debt, and much of the developed world risks going the way of Greece. Everyone will be competing for dwindling resources.

At some point, a crunch will come. China and many other developing countries are hurtling down a track that is not going where the map once told them.

The West and Beijing's politicians have given 1.3 billion people a dream of progress and wealth that is impossible to achieve.

At some point, China's people will learn that their dreams cannot come true.

Graeme Maxton's latest book is titled The End of Progress, How Modern Economics Has Failed Us