Buffett, Gates Check Out China's Gasmask Future: William Pesek
China is turning more and more American, and not necessarily for the global good.
No, China isn’t importing democracy, freeing the Internet or unshackling the yuan. Its Americanization is accelerating in two other ways: pollution and a desire to create armies of consumers sooner rather than later.
How will these two phenomena evolve in the years ahead? No one really knows, which makes many of today’s forecasts, predictions and gut feelings about China’s economic success and global influence in the long run rather pointless. Even those in the know in Beijing can’t be sure.
Here’s something we can say with certainty: China’s dual needs to reduce emissions and boost domestic demand are in direct conflict. How this standoff plays out will decide the nation’s future. At the moment, there’s reason for concern.
Take emissions. You don’t need to visit the mainland to realize China is the biggest polluter. A few days in Hong Kong, close to thousands of mainland factories, have you reaching for the Visine and clearing your throat more than usual.
Hong Kong has joined London and New York as one of the “Big Three” financial centers, according to Z/Yen Group’s latest assessment of 75 candidates. Its proximity to China’s rise is paying off. Yet this geographic advantage will become an Achilles Heel if China doesn’t go green faster.
Cleaning up 30 years of industrial waste will cost at least 2 percent of gross domestic product a year, or 680 billion yuan ($101 billion) at 2009 figures, says Ping He, president of the Washington-based International Fund for China’s Environment. Mun Sing Ho, a visiting scholar at Harvard University, puts the range at 2 percent to 4 percent.
That doesn’t really account for the next stage of China’s shopping binge. And here’s where the other part of this story connects. China plans to increase its minimum wage by at least 20 percent annually in the next five years, more than doubling it by 2015, the South China Morning Post quoted government adviser Huang Mengfu, as saying on Sept. 21.
The idea is to increase domestic demand to ease dependence on exports and narrow the gap between rich and poor, and it’s a smart one. Not only do Chinese workers deserve a big raise -- they’re demanding it. Just ask executives at Foxconn Technology Group and Toyota Motor Corp., targets of recent strikes.
Giving It Away
The world’s two wealthiest people will get 24/7 coverage in China as they prod the nation’s rich to give away chunks of their fortune. By giving more to charity, the fast-growing ranks of China’s billionaires will create jobs and enterprises and reduce ill-will directed their way.
The dark side is that increased income will empower Chinese to buy air conditioners, iPods, mobile phones, computers, furniture, televisions, motorbikes, cars, vacation packages and homes. While stellar news for Apple Inc., Ikea and Honda Motor Co., such consumption will exacerbate China’s environmental crisis. The question is whether, on future trips to China, Gates and Buffett will need to pack gasmasks.
Who knows, this may be an opportunity for Buffett. Plunging shares may make him think twice about Berkshire Hathaway Inc.’s $232 million investment in Shenzhen-based carmaker BYD Co. Perhaps investing in gasmask companies is just the thing.
Even after massive investments in new technologies, China is struggling to make its economy green. Imagine the size of the landfills it will need in the years ahead. China and other developing-nation powerhouses can’t afford to pollute with the same abandon Europe and U.S. did during their industrial revolutions. Our planet couldn’t handle 3 billion Asians consuming like Americans. If you think temperatures are rising now, just wait.
Balancing growth with fuel efficiency is no academic issue. It’s central to whether the next wave of economic leadership is sustainable. Brazil, Russia, India and China, the so-called BRIC nations, are getting lots of attention from investors, and rightfully so. So are the next emerging economies.
Take Indonesia. It is home to the world’s fourth-largest population, is resource-rich and has an economy bigger than Switzerland’s. How Indonesia manages its carbon footprint will be of great importance to Singapore, Malaysia and Australia. And Indonesia’s economy is about a 10th the size of China’s and has one-fifth the population.
Though China has done a remarkable job reducing poverty, its rich-poor divide is widening to a dangerous degree. That’s why plans to increase wages are so welcome. Creating a large middle class is the key to diversifying the economy and making it stable in the long run.
It will be a messy process, though. Getting a handle on environmental degradation to date will cost at least as much in a year as Gates’s and Buffett’s combined worth, never mind what’s coming. How China copes isn’t a human-interest story. It’s, as we Americans like to say, the whole ballgame.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
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