In case you missed it, here's a quick snapshot of what we might expect from China in the coming years Over the next decade, the world's most populous nation will use as much steel as was consumed by the United States in the whole of the 20th Century. Or perhaps it's better to think of the future like this As China industrializes, over the next 20 years it will build as many as 50,000 skyscrapers, which is roughly the equivalent of 10 New Yorks.
Those are bold statements, and some caution is warranted. The first forecast was made in August by mining house BHP Billiton, which is hardly a disinterested observer. As reports have pointed out, the company made profits of around $1.7 million an hour in its last fiscal year, thanks largely to China's appetite for the raw materials it sells. The second prediction, by consultants at McKinsey & Co., was cited a few days later by BHP rival Rio Tinto, which also has a stake in the Chinese industrial boom (and vice versa, given Aluminum Corp. of China's 11-percent ownership stake in the Anglo-Australian producer).
But even if BHP and Rio could be excused a little wishful thinking, that doesn't automatically mean their estimates are wrong. The man in the street (or in the steel industry) typically has one of two opposing reactions when faced with these kind of statements. The first is to pause for a jaw-dropping moment of wonderment at the scale of China's industrial potential, and then rush to buy shares in U.S. Steel Corp., Pittsburgh, oil futures on the New York Mercantile Exchange or any other commodity-linked instrument that will surely rise in value should China fulfill its economic "destiny." The second reaction, which we will see more in the coming months, is to dismiss such talk as hyperbole. "Isn't this just a new version of what was said about Japan in the 1980s?" skeptics will ask. Or are they the same kind of predictions, albeit on a bigger scale, that have been made about any number of emerging nations in Latin America or Asia, which have consistently stumbled after reaching middle-income status? This view has been in a minority over the past few years, and understandably so. Any country that quadruples its steel production in less than a decade tends to silence the doubters, especially when it's producing more than 500 million tonnes a year, as China seems certain to do in 2008.
But producing steel is easy enough, especially when mills are backed by the government. Ensuring demand for the plate and rebar that China's mills are churning out at a record rate is another matter altogether. China "bears" have been pointing out some worrying signs of a slowdown that have emerged in recent months. China's gross domestic product (GDP) growth fell to 10.1 percent in the second quarter (yes, that counts as a slowdown); inflation is far above the government's target thanks to high oil and food costs; and China's exporters are suffering as consumers in the developed world decide that riding out the global economic downturn is more important than shelling out a few dollars for Chinese-made toys, sneakers or electronic gadgets.
So what are China's next steps? Now that NBC has packed up its cameras and the Olympic fiesta has moved on, some observers think Beijing is likely to move rapidly to deal with these nascent problems. That could mean providing relief for struggling exporters in the form of new tax breaks, halting or even reversing the appreciation of the yuan or (in the best-case scenario for the world economy) finding a way to stimulate domestic demand without feeding into inflation. There's likely to be some short-term pain regardless, although how much of that is borne by China's companies—and how much by rival industries overseas—is a question that will become increasingly important for the next U.S. president as well as for the Chinese themselves.
Predicting the future may be a fool's game, but essentially there are two Chinas that could emerge over the next decade or two. The path taken by Beijing over the next few months is becoming increasingly important in determining which one we're most likely to see.
Kevin Foster is managing editor of AMM. Telephone, (646) 274-6270; e-mail, email@example.com.