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Reflective Perspective China’s development constraints – an overlooked perspective China is a nation of over 1.2 Billion people with economic growth of around 8- 10% p.a. By these measures alone, its demand for raw materials has the potential to overwhelm the developed world for decades to come. What ramifications will this have for the raw materials sector, its pace of development, and the economic landscape of the rest of the world? To get a picture of what China’s future development will look like, we have to look into the past to see how the world’s other major nations developed. The UK for instance, was a small nation with access to vast quantities of raw materials. Industrialisation took place as it was able to successfully link raw materials to its manufacturing facilities, which enabled specialisation on a large scale. The US and Europe followed similar patters. However, in each case, the area that was becoming industrialised (and progressing down the development path), was much smaller (in terms of inhabitants) than the regions with raw materials. This meant that the (market?) price of the raw materials stayed low, keeping one of the major inputs into the production process down. With China’s vast population, it outweighs the populations of all the developed nations combined ie – the US, Western Europe, Japan and the former Soviet Union. As such, the development of China can be expected to have a greater impact on raw materials demand than the all of the development that has taken place so far. It can also be expected that access to raw materials will be much more challenging for China’s development than it was for the previous nations on the development path. This is due to a change in the balance of the world’s population in developed versus undeveloped nations. For China, the only areas which export natural resources (generally undeveloped countries with rich natural resources deposits) are proportionally smaller from the Chinese perspective, than they were from a British/US/European perspective. The upshot of this is that it will be proportionally harder for the Chinese economy to manage the same profile of growth in development as other nations’ have in the past. It also means that the remaining resource rich areas, with undeveloped economies, eg Africa, may see substantially more interest in their raw material deposits – changing the long-term assumptions about what the market price for these commodities should be. This phase is already happening with the Chinese focussing on developing relations with key nations on the African continent. The other, less obvious impact of China’s growth will be the flow on effects for the growth of India’s economy. As China is already ahead of India in terms of progress down the development path, India will find it increasingly difficult to grow at a substantial rate. As competition (for raw inputs, markets, trading parters and investors etc) intensifies, the profitability of trade will decrease – slowing the growth rate of the economy. This will be a particular handicap given the expected growth rate of India’s population. |